Premium rates will continue increasing
It's been talked about for a while, but the insurance market is finally firming. Premium rates are going up and it appears that they will continue to climb for a few years. This is long overdue. The industry combined ratios are well over 100 percent in a number of states, medical costs continue to rise and the interest rate environment is weak. The long-term viability of the market is dependent on carriers collecting adequate premiums.
This has been the longest soft market cycle in memory. A variety of external factors have perpetuated the soft market, including but not limited to governmental intervention to bolster two of the top five workers' comp writers. As the role of these external factors decreases, the market is likely to normalize and harden.
After years of declining frequency, there was a slight uptick in frequency last year. This trend will continue as the economy rebounds. When you place a bunch of untrained, inexperienced and de-conditioned workers into the workforce, you are more likely to have higher injury rates.
Medical costs have continued to rise, and the unrealistically high projections we are seeing from the Centers for Medicaid and Medicare Services on Medicare Set-Asides have made settlement of future medical claims extremely difficult. Too many carriers have ignored the impact CMS' projections have had on their claims tail by failing to post adequate reserve increases at a time when premiums were down. We saw some significant reserve strengthening in the market the last couple of years, and I expect we will continue to see more of this.
In 2011, we saw some significant vendor consolidation, particularly in the third-party administrator market. This consolidation shows no sign of stopping. In my opinion, less competition leads to higher prices, less innovation and less emphasis on service, so I'm not sure all this consolidation is good news for employers.
Handling Costs Will Shift
What exactly do you get these days for the per-claim handling charge? It used to include things like pursuing subrogation, repricing bills to fee schedule, reporting to the excess carrier, filing state reports. Every time I do an audit I see more items popping up on the expense side that are payable to the third-party administrator. I see claims where the majority of the payments on the file are to the third-party administrator. It's getting more and more difficult for employers to evaluate their total costs of risk and to accurately evaluate their third-party administrators' performance.
Poor Economy Will Continue its Impact
With the continued high unemployment rate, it's more difficult than ever to find employment for injured workers with restrictions. While modified positions promote workers' compensation cost savings, such positions are becoming harder to justify in the present employment market. Until unemployment and economic pressures on employers are reduced, employment options for workers' comp claimants released to return-to-work with restrictions are unlikely to increase.
The economy is also having a significant impact on the risk management side. Too often, risk management personnel are considered "nonessential," so jobs are eliminated or risk management departments are downsized. Clearly, such actions lead to increased loss costs, but that is more difficult to quantify than the savings from the payroll cuts. Those who have been lucky enough to retain their staff are faced with restrictions on travel and attending conferences. That makes doing their jobs more difficult. Doing more with less will be a continuing theme for risk managers in 2012.
This is much larger than a workers' comp issue. Opioid abuse has risen to the level of a national embarrassment. Prescription drug abuse is literally killing thousands of people every year and costing the healthcare system billions of dollars.
It's time for all stakeholders in workers' comp to rally to address this issue. We need to educate medical providers and employees about the dangers of these drugs. Employers, carriers and claims administrators need to aggressively manage pharmacy costs, focusing on the appropriateness of the medication instead of just the cost per prescription. Regulators need to impose restrictions on their use and pursue enforcement measures to end the abuse.
Comorbidity factors such as obesity and diabetes continue to drive up medical expenses. Employers need to do more to encourage wellness programs. Little things like sponsoring weight-loss programs, paying for gym memberships and conducting wellness seminars can make a significant impact on the lives of employees and on employer costs. Let's all get off the couch and take a walk more often!
As the saying goes, "knowledge is power." Although workers' comp has state-specific nuances, everyone in our industry deals with the same basic issues. The Internet and social media provide a tremendous opportunity for workers' comp professionals to share information and learn from the experiences of others.
There is so much more we can do with regard to information sharing. One of the keys to improving the system is the ability to analyze the historical data in order to identify shortcomings and measure the impact of changes. However, there is hesitancy in the industry to share data. It's time we put more effort into working together for the common good rather than focusing solely on our own interests.
Back to Basics
Finally, I sometimes feel like the workers' comp industry has lost its focus. Our goal should be to prevent workplace injuries and to provide a benefit to people injured during their employment. Our job is to provide those injured with quality medical care, and to return them to gainful employment as soon as practical. Those injured on the job are not claimants; they are our friends and co-workers. A large proportion of the dollars spent in our industry these days has nothing to do with the basic goals of preventing injury, providing quality care, and getting the employee back to work. It seems that if we focus on the basics again we could provide a better service to injured workers at a lower cost to employers.
December 22, 2011
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