Increasing workers' comp medical costs are major concern, insurers say
Peter Rauner, president of RMS Solutions Inc., recently provided an overview of the significance of the workers' comp market at the Casualty Actuarial Society's Casualty Loss Reserve Seminar in Washington, D.C. Workers' comp, he said, is the largest commercial line and the largest source of industry loss reserves among property/casualty insurers. Rauner framed the issue by describing how medical expenses are a large and growing portion of workers' compensation benefits.
Pointing to data from the National Council on Compensation Insurance, Rauner said medical expenses accounted for 45 percent of the total claim costs in 1986, with indemnity accounting for 55 percent. However, medical expenses had grown to 59 percent of the total workers' comp claim costs in 2006. In addition, Rauner said workers' comp medical severities are growing at a rate well above the medical consumer price index growth rate.
"Over the last eight years, workers' compensation medical costs have nearly doubled, from about $13.5 billion in 1999 to over $25 billion in 2007," Rauner said. "That's staggering."
Rauner outlined some of the factors driving medical costs on a macro level, such as inflation, economic growth, provider consolidation, and lifestyle factors such as increasing obesity and diabetes.
"The increasing medical costs trends are a very real concern to the property/casualty industry," he said. "The spiraling costs will not only impact workers' compensation insurance, but also the industry as a whole."
Major differences between comp, group health costs. William Miller, senior vice president and actuary at ACE USA, explained how workers' comp medical costs compared to group health costs. While they utilize essentially the same resources, Miller said there are major differences, which are driven by coverages and policy terms, political and regulatory pressures, and the duration of medical payout.
"While group health includes disincentives for overutilization, workers' compensation has no coinsurance payment by the injured worker," Miller said. "Utilization is one of the primary reasons that workers compensation costs are rising so dramatically."
Miller highlighted a NCCI study to drive home his point. The study looked directly at utilization for 12 injuries and compared services provided within three months of injury. Researchers found that workers' comp costs were 71 percent more than group health costs across the dozen injuries, driven primarily by increased office visits and physical therapy.
"Workers' compensation injuries result in more intense and costly treatments earlier on than under group health," Miller said.
Miller encouraged actuaries to use their analytical skills to help design efficient workers' comp medical coverages.
"Use predictive modeling to find which doctors are providing the best outcomes for getting workers back to work and staying at work," Miller said, as he outlined the keys to containing utilization. He also cited medical fee schedules, utilization reviews, managed provider networks, and pharmacy benefit management programs as keys to an ideal workers' comp medical system.
December 2, 2008
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