Steady as She Goes

The more things change, the more they stay the same. That's the prediction many experts in the workers' compensation industry are making for 2007. Although rates are stabilizing in many areas of the country and the frequency of claims filing continues its downward trend, key problems that have plagued employers in recent years--including rising medical costs and Medicare set-asides--will continue to plague the industry.

"In workers' compensation, we continue to face the same challenges as we faced last year and the year before," said Bruce Wood, assistant general counsel of the American Insurance Association.

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Reform efforts in California and other states have helped stabilize rates across the country. Few states approved large rate increases in 2006, as opposed to years past. According to the National Council on Compensation Insurance, of the 34 filings that the organization recommended last year, 21 were for rate decreases, 10 were for increases, one was for no change and two states had rates so flat that filings were not necessary.

"We've had a few good years and have acknowledged that in our filings," said Peter Burton, senior division executive of state relations for NCCI. "A lot of this is driven by the continued drop in injuries. In 13 years of data, we've had an aggregate decrease in lost-time claims of 46 percent. That's really a driving force."

On average, the approved workers' compensation bureau rates/loss costs decreased slightly in 2006, following more significant decreases in 2004 and 2005. The decrease in those years was largely driven by California's reform efforts, Burton said.

Although medical and indemnity costs have risen consistently, Burton said "frequency has been the savior of the workers' compensation system in the past few years."

According to the most recent statistics available from the Bureau of Labor Statistics, the rate of workplace injuries and illnesses that resulted in days away from the job fell by 4 percent in 2005. In addition, workplace fatalities slightly decreased. The BLS found that a total of 5,702 fatal work injuries were recorded in the United States in 2005, down about 1 percent from 2004.

"The decrease in both the rate of workplace injuries and illnesses, and the rate for those instances where employees need to convalesce before returning to work, continues to validate many of our initiatives that are aimed solely at helping keep American men and women safe at work," said Ed Foulke, an administrator with the Occupational Safety and Health Administration.

Slowing job gains are also having an impact on claims frequency. According to NCCI, this bodes well for ongoing frequency declines. The expected slowing in job growth in 2007, the group said, is likely to result in less upward pressure on claims frequency due to changes in employment.

As for concerns in 2007, medical costs continue to top the list.

"I don't think a lot has changed since last year," said Keith Bateman, vice president of workers' compensation for the Property Casualty Insurers Association of America. "Controlling medical costs continues to be the greatest challenge faced by the workers' compensation system."

According to the AIA, medical benefits now account for more than half of all benefits costs in workers' compensation.

"The key driver is utilization," said Wood. "Unit price has some role of play, but the greater element is utilization that is driven by the absence of controls on the demand side--no copayments or deductibles--and the unlimited statutory promise to provide all medical treatment that is reasonable and necessary."

March 1, 2007

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