Posts Tagged ‘rates’

Taking Credit When It’s Due (And When It’s Not)

Wednesday, September 20th, 2017

Politicians have proven over and over again to be the most adept people in the known universe at taking credit for good things happening with which they had absolutely no involvement and blaming others for bad things happening with which they were directly connected. Case in point is happening right now in the Hawkeye state of Iowa where workers’ compensation rates for 2018 are going down 8.7%.

About a nanosecond after NCCI announced the rate reduction, Republican Governor Kim Reynolds issued a press release claiming the rate decline to be the “direct result” of workers’ compensation legislative reforms that went into effect in July, which, if you happen to be counting, ended 51 days ago as I write this. Phew. That was quick.

Of course, while the new reforms may reduce costs in the future, they have nothing at all to do with the recently announced rate cut, which, according to NCCI, is predicated on a decrease in claim frequency and actuarial data from 2014 and 2015, which, if you’re still counting, is a full 18 months before the new reforms, to whose sticking post Reynolds has now glued himself.

It will be interesting to see, over time, if the new reforms reduce costs for Iowa’s employers and enhance care for its injured workers. That’ll be a neat trick for which Kim Reynolds can justifiably stand up and take a bow at some date in the future, say around 2019.

Here’s a little ditty to go out on:

It’s a little early for the Reynolds curtain call
But if things don’t work out, who takes the fall?


The Enigma Variations: Comp Rates in Connecticut and Massachusetts

Wednesday, October 17th, 2012

Today we examine two states, side by side on the map, going in opposite directions in their workers comp rates: Connecticut, which has the dubious distinction of being the second most expensive state (only Alaska is higher) and Massachusetts, ranked 44th for overall costs, with rates so low the market is beginning to implode. These states may be headed in opposite directions, but each faces a pending crisis.
Messing with the Miracle
We begin with Massachusetts, which my colleague Tom Lynch summarized brilliantly a few weeks ago. After nearly two decades of rate reductions, MA employers are now paying about the same rates as existed in the early 1980s. Compared to the other New England states, MA rates are consistently lower, some times one fourth that of their neighbors. So it is hardly surprising that the Workers Compensation Rating and Inspection Bureau (WCRIB) sought an increase in the rates: they initially requested 18 percent, with the realistic hope of ending up somewhere in the vicinity of 6 to 8 percent. A rate increase of this magnitude would maintain the state’s position as the lowest among the major industrial states, still far below its New England neighbors.
The response of the state’s Division of Insurance is, in its methodology and ultimate result, a public work that might make the infamous Big Dig seem prudent and reasonable. The Division dismantles the entire application, demeaning and ultimately dismissing virtually every data element supporting the rate increase. While it is true that some of the data was inconsistent – due largely to the idiosyncracies of insurer submissions – the report’s conclusion that no rate increase was merited defies common sense. Indeed, when the attorney general opines that higher rates “would greatly increase the cost of doing business in Massachusetts and have a deleterious effect on the overall employment level,” one can only wonder what they have been smoking – perhaps the substance on the ballot up for legalization next month.
One the mainstays of the Division’s argument is the fact that insurance carriers continue to offer rate deviations: proof, in the Division’s eyes, that the rates must be high enough. Perhaps it is time to remind the bureaucrats who administer this program that insurers always think they can defy the odds and find the optimum risks. Insurers sell insurance to the people and organizations least likely to use it – or so they hope. As Tom Lynch likes to say, “insurance companies are prone to eating their young.” Nonetheless, a glance across state lines and across the country reveals that Massachusetts is about to cook the golden goose: with the current unabated rate suppression, the assigned risk pool will continue to grow and savvy carriers will scale back their participation in the workers comp market.
Asleep at the Wheel
While Massachusetts’s inaction on rates jeopardizes the most successful comp reform program in the country, Connecticut meanders toward economic disaster. As recently as 2008, the state was ranked 20th for overall costs in the invaluable Oregon Rate Study. But in 2010 they rose to 6th, and the state now sits in the number two spot, ahead of such reliably high cost states as New York, California and Florida. The median cost of comp in CT has risen to $2.99, compared to the nation-wide average of $1.88. (MA comes in at a paltry $1.37.) CT suffers from a toxic combination of very high medical costs (doctors love it) and a worker-centric system that is extremely generous with benefits. To add insult to injury, NCCI is requesting an additional 7.1 percent increase in the already bloated rates. Costs are out of control and regulators are asleep at the wheel.
Surely it is time for business advocates in Connecticut to raise the red flag. The cost of comp has reached unacceptable levels. When business owners can move their operations to New York to lower the cost of workers comp, you are in deep, deep trouble.
Across the Rate Divide
MA and CT provide compelling examples of enigma variations: in the perpetual search for comp rates that are fair to both carriers and businesses alike, these states have drifted too far from the middle ground. How they reached this point may be an enigma, but what they need to do is clear: take immediate steps to extricate themselves from rate cycles that simply are not working. It will take leadership, vision, and courage to confront these reverse-image crises.

In MA, regulators must stop playing political games – no easy task in a hyper-political state – and allow rates to begin a long overdue, moderated rise.

In CT, regulators must confront entrenched stake holders and begin to exert control over runaway costs.

With rates either much too low or much too high, state leaders and regulators are mired in swamps of their own making. If the current inertia is allowed to continue, the two states may eventually end up in the same place: with dysfunctional comp systems incapable of serving the needs of injured workers and employers alike.

Massachusetts Insurers Take One for the Team (Again)

Tuesday, September 11th, 2012

I have written before about what I consider to be a true Massachusetts Miracle: The 1992 reform of the Commonwealth’s workers’ compensation system and the results achieved following that reform. Bottom line – premium rates in Massachusetts are among the lowest in the nation while benefits are among the highest.
To make that happen back in 1992 all of the varying and vested constituencies had to come together and enter a grand compromise where everyone lost something so that the system could flourish as it has ever since (I won’t bother to mention that the current crop of folks we Americans have sent to the nation’s capital might learn something from this).
Employers and injured workers have benefited hugely from the 1992 reform. Insurers not so much, especially lately. Early this year, the Massachusetts Workers Compensation Rating and Inspection Bureau, representing insurers doing workers comp business in the Commonwealth, requested that Massachusetts Commissioner of Insurance, Joseph G. Murphy, approve a premium rate increase of 18.8%. After the Division held hearings and thought about it for a while, Mr. Murphy announced that he was denying the request – all of it. Result: Status quo, just as in New York a few weeks earlier. But if you think about it, this might actually be an insurer victory of sorts, because Massachusetts Attorney General Martha Coakley had made her own rate filing, which called for a reduction in rates of 8.8%. After Commissioner Murphy announced his decision, Ms. Coakley issued a press release saying, “The industry’s request to raise rates could not have come at a worse time for small businesses in Massachusetts.” She also congratulated herself and Commissioner Murphy by saying, “The decision will save Massachusetts workers compensation insurance customers approximately $175 million compared to the rates they would have paid if the proposed rate hike was approved.”
The decision will also cost the Commonwealth’s insurers the same $175 million.
But let’s get real for a minute. As Bill Clinton said last week, “It’s all about the arithmetic.”
Now, there are many variables impacting premium rates in any state. For example, workers compensation medical loss costs have been rising in Massachusetts. Just a couple of years ago they comprised an enviable 36% of total loss costs; now they’re up to about 40%, and rising. But I thought perhaps I could put things in perspective if I just looked at the Massachusetts evolutionary development of a few key factors since the 1992 reforms. And those factors would be workers compensation premium rate changes, wage development and the progression of the CPI. The data in the chart below is taken from the Bureau of Labor Statistics, the Massachusetts Division of Unemployment Assistance and the Massachusetts Department of Industrial Accidents (DIA), summarized in the Massachusetts Division of Insurance’s Annual Report of 2010 (PDF) and DIA Circular Letter 336, dated 6 October 2010 (PDF).
In the 17 years since 1994, there have been six years with double digit rate reductions, the largest being 21.1% in 1998, five years with single digit reductions, ranging from 1% to 4%, five years without change, and one year with a whopping big rate increase of 1%. The result is that rates in Massachusetts are where they were in the early 1980s. One by-product of this situation is that many Massachusetts employers seem to have lost the sense of urgency when injuries occur.
On the other hand, the CPI has increased every year since 1994 with the exception of 2010, when there was no change (it’s interesting to compare the CPI development with periods of recession; look at 2009 and 2010, for example), and the average weekly wage in the Commonwealth has grown from $586 in 1994 to $1,088 in 2010 (in 2012, it’s now more than $1,100).
The result shows a steady increase in costs and a steady decline in rates. I have to say that the reductions from 1994 through 1999 were entirely appropriate; those are the result of the 1992 reform. However, the six years with reductions since then, totally 28.3%, are questionable.
The consequences of both Commissioner Murphy’s current decision as well as the recent reductions are now being felt. The Massachusetts Assigned Risk Pool is growing quickly; in the last year it’s jumped from 12% of the market to 15% ($152 million in premium), and that was before the decision of two weeks ago. It would not surprise me to see Pool growth accelerate in the immediate future.
You can only keep the pressure cooker’s lid on for so long.

Are Comp Rates Finally Trending Upward?

Monday, October 17th, 2011

For over a decade, workers comp insurers have watched profit margins erode, as rates in many states continue their precipitous fall. The mismatch between premiums collected and losses paid out has reached alarming levels, with a projected combined ratio of 121.5 percent for the current year. Even in the best of times for investments, making up 21 percent against losses would be daunting, and these are hardly the best times for money to make money.
The ever-reliable Roberto Ceniceros writes in Business Insurance that the long-awaited upward trend in rates for comp insurance appears to be underway. Among the 38 states directly administered by NCCI, there are requests for modest rate increases in 19; given that the insurance cycle runs from July to June, we can expect to see more states with rate increase requests over the next 9 months. The increases are by no means dramatic (and, some would argue, hardly adequate when measured against insurer losses). The rate increases proposed by NCCI all fall within single digits.
There are a number of reasons for higher insurance losses:
– payrolls are down due to the recession, resulting in lower premiums
– frequency is up – an ominous sign, given that frequency had been declining year after year
– severity continues to increase, as injured workers stay out of work longer and access more exotic treatments
– returning injured employees to their jobs is increasingly difficult in an economy where jobs are disappearing
Insurers Behaving Badly
When contemplating the problems of insurance companies, we must never lose sight of the tendency, as my colleague Tom Lynch puts it, of “insurers eating their young” – in other words, despite the losses, insurance companies persist in offering steep premium discounts, leading state regulators to conclude that they don’t really need rate reductions. Insurers continue to hope that their underwriters have a magic touch in finding the good risks and avoiding the bad. With margins as tight as they are, finding a profitable book of business becomes increasingly unlikely, no matter how skilled the underwriting.
A.M. Best projects the short term prospects for comp carriers to be “grim.” That is no overstatement. State regulators tend to be slow to respond to requests for higher comp rates. Employers are already struggling in a bad economy and regulators will do everything possible to keep comp costs as low as possible. While the long-term trend of lower rates may finally be nearing an end, the upturn is likely to fall short of what is needed. These are tough times for comp carriers, with no significant relief in sight.

Experience Modification Alert: NCCI Changing the Rules

Monday, September 26th, 2011

It’s been over 20 years since NCCI changed the rules relating to the calculation of the experience modification factor. Given that experience modification determines the cost of insurance for all but self-insured employers, these changes require careful scrutiny. While some of the details have not yet been announced, one thing is clear: employers with higher-than-expected losses are likely to pay more for insurance. [NOTE: the Insider apologizes in advance for what is inevitably a rather technical discussion. For readers who would like additional background, check out our 2004 primer here.]
Under the current system, claim dollars – what’s been paid and what’s been set aside for future payment on each claim – fall into one of three categories:
Primary losses: the first $5,000 of each claim. These losses carry the most weight and drive up the experience mod much quicker than the losses above $5,000.
Excess losses: the losses above $5,000 within each claim. These are discounted in the calculation, with as little as 10 percent of the total included in the calculation (depending upon the size of the premium)
State Rating Point: the cap on individual claim dollars beyond which the losses are excluded from the calculation; this varies from state to state, generally falling between $125,000 and $200,000.
NCCI is expanding primary losses from the current level of $5,000 up to 15,000. This change will take place over a three year period, with the ceiling rising to $10,000 in the first year, $13,500 in the second year and $15,000 in the third year.
Why does this matter? Primary losses are the major cost driver in experience rating. Primary losses are not discounted: they go into the formula dollar for dollar. As a result, employers with moderately large claims (between $5,000 and $25,000) are likely to see an increase in their experience mod.
Expected Losses
Employers who have analyzed their premiums carefully understand that experience rating is essentially a comparison: the individual employer’s losses are compared to the losses for other employers performing similar work. The actual comparison is contained in the rates paid for insurance.

For example, in your state the rate for carpenters might be $10.00 per $100.00 of payroll. The total expected losses within this rate might be $5.00 per $100 of payroll. The expected primary losses (called the D Ratio) might be 20 percent of total losses: in this case, $1.00 per $100 of payroll.

As NCCI increases the ceiling for primary losses from $5,000 to $15,000, they must also increase expected primary losses. Unfortunately, they have thus far provided no information on how much expected primary losses (the D ratio) will increase. This number will determine just how much more employers with higher-than-expected losses will pay for insurance. Conversely, the revised D ratio will also determine how much of a discount will be given to employers with lower-than-expected losses. As with our changing climate, the fluctuations under the new system will be greater than in the past.
Given the trend toward very large (catastrophic) claims, it would not be surprising to see the state rating points also increase: for example, instead of capping individual claims at $200,000, the limit might be closer to $300,000. (To date, NCCI has been silent on this matter.)
Winners and Losers
NCCI actuaries are working under the requirement that total premiums within a state remain the same under the new system. In other words, when they apply the new rules, experience mods will go up or down for individual employers, but the total premium in the state will stay the same.
On an individual insured level, there will be winners and losers. Here is our advice to any employers with debit mods (above 1.0) in states managed by NCCI: follow these new NCCI developments carefully. [The easiest way to do this, of course, is to keep reading the Insider.] Primary losses remain the biggest cost driver in the workers comp system and primary losses within individual claims are about to double and soon triple. The strategies for experience mod management that were effective with the primary loss ceiling at $5,000 may no longer apply. As the rules of the game change, savvy managers will change with them.

Outlook for Workers Comp: Centennial in a Storm

Tuesday, August 23rd, 2011

In this summer of weather extremes, workers comp is celebrating its 100th birthday in America. The weather forecast – along with the prognosis for workers comp – probably sound familiar: periodic storms, heavy rain, damaging winds. The National Council on Compensation Insurance (NCCI) has issued its “state of the line” report for workers comp: 2010 was a tough year and the outlook for 2011 carries a severe weather warning.
The key indicator for insurance health is the combined ratio: add up the accumulated losses and the expenses, subtract investment income and hope you end up somewhere around 1.0. The combined ratio for 2010 went up to 1.15, five points above the previous year. Despite improved returns on investment (otherwise known as the “jobless” recovery), pretax losses for the industry averaged one percent – the first such loss since 2001.
Insurers are suffering from a convergence of negative factors: poor underwriting results, a drop in premiums (due to reduced payrolls), and an increase in claims frequency, which is perhaps the most alarming trend of all. For a number of years the increase in severity (the average size of claims) has been balanced by a decrease in frequency. If frequency continues to trend upward, the warning flags for severe trouble will be flapping in a very stiff breeze.
Politics as Usual
Further complicating matters for insurers, state level politicians are single minded in their effort to keep the costs of comp insurance as low as possible. As part of their relentless struggle to stay competitive, state regulators are reluctant to increase rates. NCCI has applied for rate increases in 14 of the states which they directly manage, up from eight in the previous cycle. Any move toward higher rates may signal at least the beginning of the long-awaited end of the soft market that has endured for over a decade.
Finally, there has been a lot of turnover among the state officials who regulate workers comp: there are 24 new insurance commissioners across the country. As NCCI puts it:

The number of newly elected and appointed officials means that the industry will face a challenge in terms of education and information for next few months at least.

Time to polish up the Gucci’s? The insurance industry hardly needs to crank up the lobbying apparatus – it’s always operating full tilt.
Candles in the Wind
As workers comp turns 100, we note that longevity itself is not cause for celebration. Just as it’s no fun to grow old, it’s not much fun trying to make money in workers comp these days. Despite a decade of tightened eligibility requirements and cuts (some draconian) in benefits, we have seen a continued deterioration in the financial health of comp carriers. Perhaps it’s my imagination, but I seem to detect a tone of anxiety as stakeholders gather to sing “Happy Birthday” to Workers Comp in America. The flames of the candles falter in the midst of a raging storm.

Health Wonk Review & other noteworthy news of the week

Friday, April 15th, 2011

Health Wonkery – At Health Business Blog, David Williams hosts a concise compendium of assorted health policy news at this week’s Health Wonk Review. He notes that judging by the quality and quantity of entries received for this edition, it’s a wonderful time to be a wonk. These bi-weekly digests are a good way to keep current on healthcare trends – important, given that the medical portion of comp is now accounting for more than half of every claim dollar.
OSHA’s residential fall protection upheld in court challenge – the U.S. Court of Appeals for the Seventh Circuit backed OSHA in a court challenge to its directive to require fall protection measures for residential construction. The directive faced a challenge by the National Roofing Contractors Association’s (NRCA), which sought to maintain an option for residential construction to use alternative protection measures that bypassed some fall protection requirements. Falls are the number one cause of fatalities in construction. BLS shows that about 40 workers are killed each year as a result of falls from residential roofs. “One-third of those deaths represent Latino workers, who often lack sufficient access to safety information and protections. Latino workers comprise more than one-third of all construction employees.”
Trucking & misclassification – The National Conference of Insurance Legislators adopted the Trucking and Messenger Courier Industries Workers’ Compensation Insurance Model Act to address employee misclassification. It would establish six standards, and employees that do not meet the standards would be considered employees. There was wide participation in formulating the standards. Parties offering input to the model law included state insurance and workers’ comp regulators, American Insurance Association (AIA), American Trucking Associations (ATA), Dart Transit Company, FedEx, International Brotherhood of Teamsters, Leadership Conference on Civil and Human Rights, Messenger Courier Association of America (MCAA), National Council on Compensation Insurance (NCCI), National Employment Law Project (NELP), Property Casualty Insurers Association of America (PCI), and United Parcel Service (UPS).
Social media – at Legal Talk Network, two respected & knowledgeable workers comp attorneys – Alan Pierce and Jon Gelman – join forces in a half hour podcast on Privacy, Clients and Social Media. Even if you aren’t an attorney, this is worth a listen. See Gelman’s related article: Facebook Becomes a Questionable Friend of Workers’ Compensation.
WC rate relief? – MarketScout reports that the commercial market is hardening, with workers comp rates either flat or rising. That is borne out in Massachusetts, where a deal was struck to keep rates flat until 2012. This puts a halt to the long-term trend of rate decreases in MA.
More transparency for OSHA rules process – Celeste Monforton at The Pump Handle calls the Obama administration on the carpet for a lack of transparency in safety rulemaking when it comes to meetings with industry representatives. “The President’s own Office of Information and Regulatory Affairs (OIRA) has hosted two meetings with industry representatives who are opposed to an OSHA regulation on crystalline silica, but OIRA fails to disclose these meetings on its website (screenshot 4/11/11.) This is the second time in as many occasions that this OMB office has failed the transparency test when it comes to extra-curricular meetings on OSHA rules. OIRA did the same thing last summer on OSHA’s proposed minor change to its injury recording log. Others have identified even more serious infractions by OIRA, but have yet to receive a response from the White House.
Reality TV – While we’ve been joshing about upcoming fictional portrayals of workers comp on TV, Roberto Ceniceros at Comp Time points us to an interesting case of reality TV catching mining safety violations in action. A spike TV program about West Virginia coal mining – created by the same folks who do the “dangerous jobs” series – revealed violations that prompted citations from Mine Safety and Health Administration inspectors. It’s an interesting story – Roberto offers the full scoop complete with links.
Legal matters – At LexisNexis Larson’s Spotlight offers another round of Five Recent Cases You Should Know About, with cases spanning the Going and Coming Rule, heat-related illness, a COPD claim, and more.
Disability redefinedComplex Care Blog keeps us updated on bionic legs and other miracles that demonstrate the power of the human spirit and technology to overcome the odds.
Kudos to NAIC – National Association of Insurance Commissioners (NAIC) 2010 Annual Report Pillars of Strength offers “a testimony to the fundamental strength of our national system of state-based insurance regulation.” NAIC has been actively involved in the Patient Protection and Affordable Care Act, including the creation of Medical Loss Ratios, a rate review process, and working with federal and state authorities to establish health care exchanges. The organization has also been active in financial regulatory reform, including a Solvency Modernization Initiative to update US insurance solvency framework, market regulation, and more. NAIC is also noted for its excellent consumer information and fraud awareness initiatives. This includes a great insurance primer for for owners of small companies and home-based businesses: Insure U for Small Business.
Of noteHR Daily Advisor features a great article on six ways attorneys will attack your investigation – not workers comp specific, but a good backgrounder of any potentially litigious employment situation.

The Politics of Workers Comp Rates

Wednesday, May 12th, 2010

Massachusetts has the lowest workers comp rates among the major industrial states and just about the lowest rates in the nation. The cost of comp in the other New England states is roughly double that in the Bay state. So you would think that the rates in MA would at best stay the same from year to year, or increase slightly. Well, think again. Martha Coakley (yes, that Martha Coakley), the current and future Attorney General, has brokered a deal for yet another rate reduction: an average of 2.4 percent across all classifications. The insurance industry had argued for an increase of 4.5 percent. I guess they did not exactly convince Martha.
The AG thinks that the insurers are overstating future losses. In my experience with carriers operating in MA, they are actually understating losses, but that’s a matter for the actuaries. If, as the AG argues, rates are too high in MA, what can you possibly make of rates in the other New England states and across the country? Are MA employers really that much better at preventing injuries and at getting injured workers back to their jobs? If you buy that argument, I have a nice bridge spanning the Mystic River that you might be interested in owning.
The trends in MA are no different from those across the country: while frequency is down, severity is rising at an alarming rate. In MA, severity is spiraling out of control. The state’s generous wage benefit structure, combined with a first rate (and pricy) medical system and a judiciary that tilts strongly toward the injured worker, are making six figure reserves all too common. It’s truly puzzling that the AG can look at the performance numbers for the insurance industry and conclude that rates are too high. They are way too low.
Politics: Local and Loco
It’s not hard to fathom why an elected official chooses to drive deflated rates even lower. It’s politically popular; any rate increase – even the marginal bump proposed by the industry – would be met with howls of outrage from small businesses, who are already under seige in a struggling economy. Strange to say, the depressed cost of comp is subsidizing the otherwise high cost of doing business in MA.
The AG is not finished with her rate scalpel: she thinks a few more points can be carved out next year. It will be fascinating to see how the carriers respond. Not too many folks think there is much money to be made in MA comp. And that rapidly dwindling club is about to get a lot smaller.

Cavalcade of Risk and News You Can Use

Wednesday, February 24th, 2010

New Cavalcade of Risk – David Williams of Health Business Blog is this week’s host of Cavalcade of Risk. He offers a concise array of postings, including one method of improving immune response that you absolutely do not want to miss. While stopping by, check out his other posts – he always has the scoop on interesting new issues and trends in healthcare. Also, follow his Twitter feed.
Healthcare reform – The latest Kaiser Tracking Poll on attitudes to healthcare reform shows that while Americans are evenly split on health care reform legislation (43% for; 43% against), but agree on certain provisions. The poll also shows that if Congress decides to stop working on healthcare, 58 percent of Americans say they will be either disappointed or angry, with 38% saying they will feel happy or relieved.
There is support for several key provisions of reform that cuts across all political persuasions. Percent saying that it is extremely or very important:
76% – reforming the way health insurance works
72% providing tax credits to small businesses
71% Creating a health insurance exchange / marketplace
71% Helping to close the Medicare doughnut hole
70% Expanding high risk insurance pools
68% Providing financial help for low / middle income
Property-casualty trends – At the Insurance Information Institute’s Blog, Claire Wilkinson posts that the U.S. property-casualty rating trends are stable. She reports on the A.M. Best 2009 Rating Trend Review, which says that although the industry’s results are likely to be pressured in 2010, rating actions are not expected to move profoundly in one direction and the number of upgrades/positive outlooks and downgrades/negative outlooks will be fairly balanced over the next year.
California agriculture – According to a study conducted by the California Workers’ Compensation Institute, the state’s agriculture industry accounted for 5.5 percent of all injury claims and 5.9 percent of all workers’ compensation benefit payments over an eight-year study period. The three most common injury categories for these workers were medical back problems without spinal cord involvement; minor wounds and injuries to the skin; and shoulder, arm, knee and lower leg sprains.
Colorado Fraud surveillance – Pending legislation in Colorado would put new restrictions on insurers and employers use of surveillance of employees with workers comp claims. Before surveillance can be conducted, the insurer or employer must have a reasonable basis to suspect fraud, and employees would have the right to a hearing to learn why they are being investigated. Critics of the law say that, if passed, it would be the nation’s most restrictive surveillance law related to workers comp. At Comp Time, Roberto Ceniceros examines the issue of the dollar value of surveillance.
Medicare Second Payer deadline – The Centers for Medicare/Medicaid Services (CMS) advises that the deadline for non-group health mandatory reporting for secondary payer has been delayed from April 1, 2010 to January 1, 2011. “Medicare Secondary Payer reporting requirements are intended to ensure that Medicare remains the secondary payer when a Medicare beneficiary has medical expenses that should be paid primarily by a liability, no-fault or workers compensation plan.”
Health & Safety – Most employers know that good health & safety resources are avaiable from OSHA and the CDC. Don’t forget out neighbor to the north. The Canadian Center for Occupational Health and Safety has a wealth of information also. A few recent finds:
Vibration Exposure
Tips on handling negative interactions at work
Substitution of Chemicals: Considerations for Selection
Excavations: A guide to safe work practices – a 6 part video

Massachusetts Premium Rates Redux

Monday, November 23rd, 2009

My blog post of last Thursday (19 November 2009) addressing why workers’ compensation costs in Massachusetts are the lowest in the nation, while benefits are among the highest drew a mild pushback from Mark Walls, who manages the excellent LinkedIn Workers’ Compensation Forum. Mark wrote:
“Working for an excess carrier, I would never have expected Massachusetts to be considered a “low cost” state. In Massachusetts you cannot settle medical, and there are COLA’s on the lifetime benefits. In my world, it’s a high cost state.
I guess it’s all about your perspective.”
And he’s right- it is all about perspective. Mark also wrote, “I’m a claims guy,” and the blog post in question was all about premium rates. Sometimes, what appears logical when looking at claims can appear illogical when viewed through the prism of premium rates.
I can certainly understand why claims professionals in Massachusetts might be a bit frustrated, because not being able to settle the medical portion of a claim, along with having to contend with annual Cost of Living Adjustments, tends to obliterate predictability.
The perspective Mark mentions changes, however, when one considers a workers’ compensation program unique to the Massachusetts voluntary market, a program that substantially increases premium collected in the state while not driving up premium rates: the All Risk Adjustment Program, or, as it’s better known, the ARAP Surcharge.
In all 38 NCCI states, the ARAP, a sort of second experience modification that penalizes severity more than frequency, exists as the Assigned Risk Adjustment Program and is found in the Residual, but not in the Voluntary, market. This is supposed to provide even more of an incentive for employers in the Pool to do the right things to get themselves into the voluntary market. It’s a debit mod only. In Massachusetts, however, the ARAP can be found in both the Residual and Voluntary markets. If an employer in the Voluntary market has a high experience modification, it will also most likely find itself with an ARAP surcharge, anywhere from 1% to 25%, which is applied to the standard modified premium.
For example, say a company in the Voluntary market has a manual premium of $100,000, an experience modification of 1.5 and an ARAP of 1.2. The resultant total premium will be $180,000. Think of the $30,000 ARAP charge as compound interest. This means that Massachusetts premiums are more sensitive to losses than premiums in other states, even “loss cost” states.
And why shouldn’t an employer with high claim severity pay more for workers’ compensation? Why should employers with low claim severity subsidize those with high claim severity? Although many in industry abhor the idea of the Voluntary market ARAP, it seems to me that Massachusetts is doing the fair and reasonable thing.
In 2007, ARAP surcharges in Massachusetts brought in additional premium of $60 million, or about 7% of total premium in the state. However, this should decline fairly significantly in 2008 and going forward for two reasons:
• First, until 2008, the maximum ARAP surcharge was 49%; in 2008, the maximum was lowered to 25%;
• Second, Massachusetts has been hard hit by the recession, causing payrolls to decrease substantially; lower payrolls result in lower premiums.
The Massachusetts Workers’ Compensation Rating and Inspection Bureau is now engaged in the monumental task of putting together a rate filing to be submitted in 2010. It will be interesting, indeed, to see to what extent lowering the maximum ARAP surcharge from 49% to 25% impacts the filing.