By Nancy Grover
While many focused on a handful of themes, they had several different ideas about how the industry might respond to the latest challenges.
Rates. Not surprisingly, the soft market seems to be all but over, at least in most states. NCCI's filings indicate workers' comp rates are trending up.
"Based upon this year's filing cycle, definitely that trend has come to fruition," said Peter Burton, NCCI's senior division executive for state relations. "Seventy-five to 80 percent of NCCI's annual filings have been for loss cost increases, which is a departure from several years prior when the majority were for decreases."
Of NCCI's 37 most recent filings, 26 have been for increases, seven were for decreases, one was for no change, and three were law filings. "Flattening frequency or an increase of frequency, and higher medical costs are two of the drivers fueling the increases," Burton said.
Despite the increases, it will likely be several years before the workers' comp line is actually profitable again, according to Robert P. Hartwig, president of the Insurance Information Institute. In a recent survey, more than half the nearly 250 property/casualty executives responding said they expect to see profitability in property/casualty -- except in the workers' comp line.
"It's a reflection of the fact that steering workers' comp back to profitability is even more difficult than steering the Costa Concordia away from the rocks," Hartwig said. "It's a long slow process that is fraught with danger."
As Hartwig explains, there's a lag time from when rate filings are initially made and when they are implemented. Added to that is the fact that many insurers have to ratchet back deep price discounts they've offered over the last several years.
"It's a multiyear process," Hartwig said. "Historically turning around workers' comp can take three or four years before the line is restored to profitability."
In the meantime, the unemployment rate has dropped and realistically some 2 million more jobs could be added this year. Hartwig says it is imperative that insurers price workers' comp appropriately.
"It needs to be done as quickly as possible," he said. "Because if it's not, insurers will be caught in the very awkward situation of having billions of additional new workers' comp premium dollars as the economy continues to add jobs, but each additional dollar of payroll exposure creates a loss."
Pressure on rates is a theme being seen among Willis' clients, according to Pam F. Ferrandino, casualty practice leader for placement at Willis North America. Increased rates among small commercial and middle-market accounts with the brokerage firm range from 1 or 2 percent up to 10 percent. Depending on their locations, larger accounts are seeing rate increases but are able to temper them through various actions.
Ferrandino said another area seeing pricing pressure is in the excess workers' comp market. "We're seeing a shift in higher combined ratios for all companies to write excess comp," she said. "It's a change. We don't have an issue of capacity we have markets that want to write risks." With little change expected in interest rates in the next couple of years, Ferrandino said carriers are trying to get more rate to offset premiums and loss pressures they have had.
With rates firming, there may be a renewed interest in some of the fundamentals of workers' comp that have gone by the wayside. "It will be very interesting," said Joseph Paduda, principal of Health Strategy Associates and author of the Managed Care Matters blog. "The soft market has been around for six years so there's been no case for doing risk management or loss control. I think folks will have to go back to the basics of loss control and risk management -- identify where losses are coming from, determine if there are any patterns, do work site safety inspections, identify potentially risky behaviors, and put in place safety programs."
Ferrandino also believes there will be renewed efforts to make companies safer, particularly as the economy improves. "Often, there is an association of greater frequency with new employees," she said. "So as people look at hiring, there is a reinvestment in safety -- as you either return people who had been out or you are hiring new employees -- making sure the safety procedures and practices you had are in place."
Ferrandino said increased safety efforts are just one way companies will look to improve their workers' comp programs. Another is through medical cost containment, especially the pharmacy component.
"There is not a lot of premium to squeeze," Ferrandino said. "The opportunity to save is how your workers' comp program is put together."
The use of specialized networks with different pricing programs is one of the tools being used to generate savings. The networks can be set up so there are fewer individual bills. "So MRIs and treatment are billed together to reduce the bill count," Ferrandino said.
As Ferrandino explained, companies are looking at getting the best outcomes for their injured workers, something she calls "measuring what you treasure" -- your employees. "People are looking at getting people back at the lowest cost -- nor necessarily the lowest prices, but a compilation of injury cost, treatment cost, etc., so the person can be back at work functioning as highly as possible and as quickly as possible."
The economic downturn over the last several years has led many companies to try to do more with less. One broker predicts that could become problematic for some companies.
"I don't see employers hiring additional staff to handle workers' comp. It's the fifth or sixth hat someone may be wearing," said Mark Noonan, managing principal of casualty practice at Integro Insurance Brokers. He says workers' comp costs have been held down over the last several years by decreasing frequency, along with vigilance and creativity to keep severity in check.
"If the vigilance and creativity go away, workers' comp is like Jell-O -- it will find the weakest point of the mold and it's going to break through," Noonan said. "You can't focus on just bending or lifting and ignore other workplace issues. You have to look at it in its totality and focus on pre-loss and return to work, post-loss, better medications, and being able to use limited resources most effectively."
Noonan warned that employers who take their eye off their workers' comp programs may see costs increase. "You can't rely on claims administration vendors to do what is best for you," he said. "Don't sit back and ask my opinion. Get involved. I'm going to give you my best advice, but it's your company, your employees. You need to be part of the solution."
Physician dispensing. The year 2011 saw the emergence of repackaged drugs dispensed by medical providers. Florida lawmakers are considering a proposal that would make the practice less lucrative. But Florida is not the only state where the issue is a concern.
"I see that NCOIL [the National Conference of Insurance Legislators] and individual states are looking at the costs of repackaged drugs dispensed by physicians," Burton said. "I think that aspect of trying to control medical costs will be a prevalent issue in 2012."
The costs to the workers' comp system from repackaged drugs range from an estimated $700 million to $1 billion "for no improvement whatsoever," Paduda said. "As the market hardens people are going to pay more attention to real cost issues. I think on its face it's a soft target. Few people benefit. There is no benefit for workers or employers or insurance companies."
But Paduda says the practice will not be easily eliminated. "The physician dispensing companies, repackaging companies, and physicians themselves are making hundreds of millions of dollars off the system. It's enormously profitable," he said. "It's not one of these [issues that] once you fix the problem you fix the problem. It's more like you fix a hole here, and then there's another leak. There is so much profit in this practice the companies that profit from it will spend whatever it takes to keep their livelihood going."
Perhaps one of the most discussed issues among workers' comp executives is the use and abuse of opioids. While there has been much conversation, 2012 may see more action to address the issue.
Ferrandino, for example, said some of Willis' larger clients are starting to coordinate the efforts of their benefits and workers' comp divisions to leverage their efficiency of buying medications through both parts of the organization. In doing so, she says companies can see if an employee is receiving more than 365 days worth of prescriptions in a calendar year.
"Unless you are looking at [the benefits program and the workers' comp program] together, you would not know if that same individual is receiving opioids through one program in addition to the workers' comp program," Ferrandino said. "I think most companies want to do that because they have an appreciation that those costs continue to escalate."
In addition, some insurers are beginning to take action. Paduda says regional carriers in particular are becoming involved in efforts to curb unnecessary opioid use among injured workers.
"There are going to be payers who take the initiative on this and other payers who adopt a 'don't see and wait' attitude,'" Paduda said. "At the end the market will work because carriers who are able to significantly impact opioid use are going to have much more favorable loss development than those who don't."
Paduda said he's seeing some carriers setting up systems to alert treating providers and other stakeholders when an injured worker is prescribed an opioid, leading to more involvement by clinical staff members on the claim.
In addition to preventing injured workers from becoming dependent on opioids, the workers' comp system also needs to address the "tens of thousands of claimants who are addicted right now and/or abusing or diverting drugs," Paduda said. "I think the more forward thinking insurers and administrators are going to screen those people for addiction and get them into treatment immediately . . . carriers with any insight at all will screen for addiction and dependency and work to treat claimants identified as at-risk. That is starting to happen, mostly inpatient now, but there is a shift that is going on toward outpatient. It can be quite effective and less expensive."
Some in the medical provider community are also looking closely at the issue and taking action. "I'm really excited about the group Physicians for Responsible Opioid Prescribing," said Denise Gillen-Algire, a registered nurse and practice leader with integrated health and productivity management for Risk Navigation Group.
"This whole issue with opioids is not just the pill mill. That is a problem, but not the only problem," Gillen-Algire said. "They believe a greater problem is an issue with the uneducated or misinformed provider out there who thinks they are doing good by managing their [patient's] pain. They've been miseducated."
Gillen-Algire said PROP offers tools for providers to become better educated on responsible opioid prescribing. "The philosophy is to educate the public, consumers, and doctors."
Many experts have pointed to actions taken in Washington state as a model for something jurisdictions can do. This year may see other states take similar steps.
"That issue has finally been raised by enough people and the human impact that the inappropriate use can have on someone is really compelling," said Jennifer Wolf Horejsh, executive director of the International Association of Industrial Accident Boards and Commissions. "I think the administrative community is preparing for action on that. I think we will see that challenge addressed from many levels. The payer community and medical provider community have a huge role, but I think states will take some action."
Among the actions that employers may taken is dropping vendors that have tight exclusivity with PPO networks perceived as failing to adequately address the issue. "Clients are starting to ask the right questions," Noonan said. "They are starting to look at medical providers and networks and saying, 'What are you doing to manage physicians?'"
While managing opioid use by injured workers is a primary concern for the system, there is an even larger issue at play, according to Noonan. "There are a lot of risks that people will get ill or die from medications, and it's not just opioids but it's any combination." he said. "There are a lot more people working with comorbid conditions than there used to be. That is something the physicians have to understand."
Preexisting medical conditions among injured workers have become more prevalent, especially with the aging of the workforce. Effective disability management programs that typically have existed outside the workers' comp realm may be incorporated for those with occupational injuries.
"I've heard some employers talking about . . . the notion of acute early interventional case management to identify high-risk conditions such as degenerative joint disease, osteoarthritis, and spine conditions that are at a much greater risk of turning to surgery when there might be other, better options," said Gillen-Algire. "The focus isn't necessarily on limiting access, but educating the consumer about the choices they have. These choices greatly impact function."
Explaining the options available to injured workers may result in better outcomes for everyone, Gillen-Algire said. "Consumer-driven health care is here," she said. "The more you can influence and educate the patient, we can make better choices which will help manage costs and future liabilities down the line."
Other emerging issues. Where 2011 saw several states adopt major workers' comp reforms, 2012 might see more focused legislation. "Being an election year and being the fact that there were so many broad-based reform efforts, very few states will engage in sweeping changes," the NCCI's Burton suggested. "With that said, I don't think legislative activity will lessen."
Burton believes state lawmakers will look to increase benefits, control costs to the system, address second injury funds, and move state funds to be more competitive. "But it will be state specific versus a statewide relook at the comp system."
Wolf Horejsh also expects to see legislative activity in the states. "It will be interesting to see -- if the market does harden and premiums do go up -- if that will again leave an appetite for reform in order to keep business in states," she said. "I've heard a lot about jobs, jobs, jobs. Making the states business-friendly is a primary objective of a lot of governors. It continues to trickle down to workers' comp."
A question for the workers' comp system in 2012 is what the impact of federal health care reform will be. While some take a wait and see attitude, others believe its effects are imminent.
"It has more impact on comp than anything out there," Paduda said. "What a lot of people don't understand is the interrelationship of the workers' comp system with other payers. When you think about it, workers' comp operates not in a bubble but in a payer and provider environment with all kinds of interaction."
As Paduda explains, the entire landscape of health care is changing and that will effect comp. He believes network options will change and payers will diversify their network relationships, leading to more "piecemealing" of networks.
Expect 2012 to bring more technological changes, the experts predict, especially electronic billing. "I think this year it's going to take off," Wolf Horejsh said. "That has far reaching potentials for the system, this idea of diminishing some of the administrative costs and making it easier for providers to treat injured workers because they will get paid in a timely, efficient way. It's an issue our members have indicated that in 2012 they are very, very interested in."
Another technological change that the workers' comp system will start preparing for is the conversion to the International Statistical Classification of Diseases and Related Health Problems, or ICD-10 diagnosis and institutional procedure codes. The change, which officially takes place in October of 2013, could have "severe consequences for workers' compensation," according to the IAIABC.
"In 2011 the workers' comp community had an 'ah ha' moment and said, 'we're not a covered entity, however, it probably impacts us more than we think,'" Wolf Horejsh said. "I think in 2012 there will be an awakening and realization that diagnoses codes are touched by so many aspects of the claims process and medical billing process. People will realize that this conversion is going to require quite significant changes."
Finally, 2012 may see a second state allow employers to opt out of the workers' comp system. Oklahoma is studying the proposal to see if it should join Texas in eliminating the requirement for employers to provider workers' comp insurance.
"There is a group of people I respect who don't think workers' comp will be around in 10 years," said Paduda. "I think there is some valid argument to be made. . . . In Texas a lot of people thought nonsubscribers would go away. Well, it hasn't. Oklahoma is strongly considering getting rid of the mandate for workers' comp at the end of a very, very soft market."
Read more at the WorkersComp Forum homepage.
February 22, 2012
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