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Katie Siegel

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at ksiegel@lrp.com.

WC Rate Analysis

WC Rates on Downward Trend

Workers' compensation rate decreases are encouraging, but may not translate into lower prices for employers right away.
By: | September 19, 2014 • 5 min read
Money rain

Workers’ compensation rates are finally beginning to reverse an upwards trend. Fifteen out of 20 rate and advisory loss cost filings submitted by the National Council on Compensation Insurance (NCCI) so far this year have displayed decreases. Nine out of 10 filings submitted in the risk assigned market have also reflected decreasing rates.

“It really is a fascinating dynamic,” said Eric Silverstein, risk management leader at Lockton’s Dallas office. “We’re getting close to a tipping point where, if you look at the number of states that have passed through rate decreases, it’s getting close to a majority.”

Those decreases, however, may not translate into lower prices for employers right away.

“At our annual conference, we use certain buzzwords. A couple years ago, we said the numbers were ‘conflicted.’ Last year we called them ‘encouraging.’ This year they are ‘balanced,’” said Peter Burton, senior executive for state relations at NCCI.

Rate changes in NCCI-rated states range from an increase of 6.8 percent in D.C. to a decrease of 10.4 percent in Kansas. While a handful have posted increases or no change at all, the majority will propose rate reductions going into 2015.

“Florida just went down 2.4 percent. Oklahoma has significant reform and was down about 15 percent,” Silverstein said. “So it will vary by state and by class code within each state as well.”

“However, that doesn’t necessarily reflect into price decreases for all buyers,” he said. “Insurers have a certain amount of flexibility in their underwriting process, and they won’t necessarily use that filed rate, depending on what the particular state regulations are.”

The price that companies ultimately end up paying will be determined by their respective risk profiles. Those with positive profiles will reap the benefits of the decreased rates, while those with poor risk profiles could end up paying more.

Regulators, Silverstein said, file their rates based on results from preceding years, but insurers will ultimately price their products to anticipate future fluctuations as well.

Nonetheless, the rate decreases are encouraging signs of a softening and more competitive workers’ comp marketplace.

Economic and Market Forces

The improving economy is partly to thank. Rising employment means bigger payrolls and bigger premiums. $42 million in workers’ comp premiums have been written this cycle, which runs from July 1 to the end of next June, according to Burton.

“This is the third year in a row it’s gone up,” he said.

Good underwriting results have also contributed, as well as a decline in injury rates. According to the Bureau of Labor Statistics, “No private industry sector experienced an increase in the rate of injuries and illnesses in 2012.” The injury and illness incidence rate for 2012 was about 3.4 cases per 100 full-time workers, which “continues the pattern of statistically significant declines that, with the exception of 2011, occurred annually for the last decade.” According to Burton, some states have seen injury rates fall by as much as 58 percent.

“The frequency of loss is down,” Silverstein said. “We experienced that with our clients, and it’s now being recognized by the rating agencies.” As the economy improves, however, frequency could potentially climb up again alongside rising employment rates.

Medical and indemnity cost increases are also slowing down, contributing to the trend. Medical costs have risen an average of three percent, down from seven percent increases in past years; indemnity payments have risen only two percent, down from consistent five percent increases over the past 10 years.

The growing popularity of closed formularies could also be contributing to reduced medical costs, Silverstein said. Closed formularies deny coverage for any drugs not included in the program, such as brand name prescriptions for which cheaper, generic versions exist. Early results from states that have adopted them show reduced costs associated with prescription drugs.

“We have another 16 filings to go, and they could be different,” Burton said. “Every state is its own microcosm. But predominantly we are seeing decreases.”

Non–NCCI rated states are witnessing the same trend.

In April, the Pennsylvania Department of Insurance and Labor & Industry announced a 5.15 percent workers’ compensation rate reduction.

Pennsylvania Insurance Commissioner Michael Consedine said in a press release, “As a result of this action, we estimate that Pennsylvania employers will experience annual savings in workers’ compensation insurance costs of approximately $140 million.”

This is the third time the state has reduced rates since 2012, saving approximately $410 million for employers. Consedine called this a “very positive trend.”

In California, the Workers’ Compensation Insurance Rating Bureau (WCIRB) governing committee voted on Sept. 4 to reduce the rates originally recommended in its mid-August Pure Premium Rate Filing. The vote was based on the WCIRB Actuarial Committee’s review of new insurer experience complied in late June which shows “lower than anticipated loss development in the second quarter and some moderation in the 2013 indemnity claim frequency growth,” according to a statement from the Bureau.

The amendment to the filing proposes premium rates that average $2.77 per $100 of payroll, down from $2.86 per $100 that was recommended in August. Even with the decrease, however, the new rate is $0.20, or 7.9 percent higher than the overall industry average of $2.57 as of July 1, 2014.

Some states will see much more significant decreases. Oregon’s base rate, for example, will decrease by an average of 5.3 percent next year, on top of a 7.6 percent decline in 2014. Employers will pay an average of only $1.27 per $100 of payroll in 2015, seven cents down from 2014.

As Okla. Insurance Commissioner John D. Doak said, “When employers pay less for workers’ compensation insurance, they can more easily grow their business, hire additional workers and expand local economies.” Over the past two years, Oklahoma has decreased its loss cost levels by about 22 percent.

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at ksiegel@lrp.com.
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2014 Risk All Star: Dr. Frank Tomecek

Reducing Patient and Workers’ Comp Pain

Unnecessary surgery is bad for almost all parties involved. It results in more pain and more hospital time for the patient, greater susceptibility for pain medication abuse, larger claims for workers’ comp carriers, and a poorer level of overall health care quality.

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Dr. Frank Tomecek, a neurosurgeon with the Oklahoma Spine & Brain Institute, saw a way to lessen that basket of troubles.

By using electrodiagnostic functional assessments (EFA) to collect more data on muscle and nerve function, he could determine if a patient complaining of pain from hardware in the neck or back really needed to have it removed.

“The EFA determines if muscles are functioning properly, or if there are other nerves or muscles away from the hardware that may be causing the pain,” Tomecek said.

That’s relevant, he said, because in a workers’ compensation case, a patient could attempt to cheat the system by lobbying for a second surgery to increase the size of the settlement.

Dr. Frank Tomecek, neurosurgeon, Oklahoma Spine & Brain Institute

Dr. Frank Tomecek, neurosurgeon, Oklahoma Spine & Brain Institute

By attaching electrodes to a patient’s body and then asking him to perform activities like standing, bending and lifting, Tomecek can see whether the muscles in question are contracting and relaxing as they should, or if the patient is purposely giving no effort in order to exaggerate their pain and strengthen their case for hardware removal.

Other than through EFA, in conjunction with X-rays and other tests, “there’s no true way to diagnose if hardware really needs to be removed,” said MaryRose Reaston, founder of Emerge Diagnostics, who developed the technology — and won a 2012 Risk Innovator™ award for it.

“He took EFA to a new level and developed a procedure to see if it could objectively assess whether removal was necessary and what alternative treatments could help.”

Working on this new application of EFA for just under a year, Tomecek has used it for only about 20 patients, but the results, Reaston said, have been “phenomenal.”

“In the realm of workers’ compensation,” said Sheila Harless, workers’ compensation manager at the Spine & Brain Institute, “I know that Dr. Tomecek has been able to eliminate the need for many hardware removal surgeries.”

“This has protected the patient from the risks of a surgery that may not even help them, and has saved money for the insurance company in the cost of the surgery and in permanent impairment rewards related to additional surgery.”

Hardware removal has posed a particular problem because its criteria are subjective; all it took was a complaint of pain to justify an invasive surgery to extract hardware.

Favorable outcomes were achieved in only 50 percent to 60 percent of patients, according to Reaston.

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With the help of EFA, Tomecek has been able to reduce these surgeries and recommend site-specific physical therapies to treat the root cause of pain, which in turn decreases dependency on high-strength painkillers.

“We’re one of the highest states for prescription drug-related deaths,” Tomecek said. “We’re trying to prevent those events.”

Reaston called Tomecek a “big patient advocate.”

Workers’ comp carriers are likely happy to have him on their side as well.

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350px_allstarRisk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and/or passion.

See the complete list of 2014 Risk All Stars.

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2014 Risk All Stars: Latitia Estrada & Chris Chathams

Team Tackles Timber Safety Gaps

“There are so many injuries in our industry. It’s inherently dangerous,” said Latitia Estrada, human resources generalist and grant coordinator for Timber Products Manufacturers Association (TPM).

Latitia Estrada, human resources generalist and grant coordinator, Timber Products Manufacturers Association

Latitia Estrada, human resources generalist and grant coordinator, Timber Products Manufacturers Association

She and Chris Chathams, TPM’s safety resource director, work to make their members safer. Through OSHA and state grants available for nonprofits, the two have been able to develop multiple training programs to provide at no cost to both member organizations and non-members in the area.

“One of the programs we facilitated was combustible dust training,” Chathams said, which was developed with the help of a $250,000 OSHA grant in 2009. “It focuses on recognition of combustible dust, compliance with federal and state laws, and mitigation techniques, so the members we serve can improve safety and health programs by eliminating combustible dust.”

Their second project is a larger undertaking, utilizing a four-year developmental grant.

“We’re designing a program, almost a school, that takes you from logging raw timber out in the forest all the way through the manufacturing process in the sawmill,” Estrada said. “No matter where an employee falls in that process, there’s some sort of safety resource for them.”

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About half of TPM’s members use the training programs in some way, whether it’s attending webinars, completing worksheets or participating in safety videos filmed on-site. In all, TPM’s programs have served up to 150 companies throughout the Northwest region.

“We’ve seen companies reduce accidents and injuries by up to 75 percent in a three-year span,” Chathams said. “Once they adopt the hazard awareness techniques we train, it’s almost like flicking on a light switch. Their injury claims just start dropping.”

The training programs filled a gaping hole in the industry’s needs, according to Estrada. “These resources don’t exist outside of us, which is why we’re funded.”

Chathams estimated that they have saved small companies more than $134,000 in training costs alone. “We cannot begin to estimate the cost savings by lowering injury rates through education,” he said.

Chris Chathams, safety resource director, Timber Products Manufacturers Association

Chris Chathams, safety resource director, Timber Products Manufacturers Association

April Kersch, safety and environmental coordinator at Sun Mountain Lumber in Deer Lodge, Mont., praised the pair’s efforts.

“From brainstorming sessions to webinars to on-site training, they provide excellent, well-researched material that is relevant to our industry,” she said. “They act as a hub in a very large wheel.”

“We’ve had Chris come in for multiple presentations and to point out safety hazards,” said Mikal Zemjlak, safety and environmental manager for Pyramid Mountain Lumber in Seeley Lake, Mont. “It’s definitely helped to change our culture. And he always gets back to me right away if I have a question.”

The team currently has a grant submission in process to develop an app that would help users evaluate and identify combustible dust.

“OSHA is very excited about it,” Chathams said. “We think we can really get into the safety market with the tools everyone is using right now.”

The market seems ready to respond. With modules and training sessions currently booked at least three months in advance, TPM has had to hire another safety trainer just to cover requests for their service.

Responsibility Leader

Latitia and Chris are also being recognized as a 2014 Responsibility Leaders.

Filling a Need for Safety

Saws and heavy lumber make the timber and wood products industry inherently dangerous. But many small companies lack resources to provide adequate safety training to employees.

Enter Latitia Estrada and Chris Chathams of Timber Products Manufacturers Association (TPM). The duo leveraged their nonprofit status to win government grants to create and provide training to member organizations at no cost.

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The training programs, consisting of webinars, worksheets, and videos, bring awareness to the highest-risk areas of the industry, all the way from logging in the forest to working a sawmill on the factory floor.

Over the past two years, more than 80 employers and 2,200 employees in seven different states have received training.

The pair estimates they’ve saved participating companies more than $134,000 in training costs alone, not including costs saved by lowering injury rates.

One company was able to slash their injury rates by 50 percent.

Chathams and Estrada have also widened TPM’s involvement within the safety industry.

They’ve worked with different chapters of the American Society of Safety Engineers, the Northern Idaho Safety Fest and the Montana Safety Fest.

Looking to the future, they’ve also helped TPM create a safety scholarship and internship program.

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350px_allstarRisk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and/or passion.

See the complete list of 2014 Risk All Stars.

Responsibility Leaders overcome obstacles by doing the right thing over the easy thing to find  practical solutions that benefit their co-workers and community.

Read more about the 2014 Responsibility Leaders.

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