Month: May 2012

May
14

NCCI research wrap-up; disability duration drivers

Posted by Joe Paduda on Monday, May 14th, 2012 | Comments

Late on Friday the true work comp nerds stuck around for the research workshop, while the smarter NCCI attendees headed home or hit the golf course.
Barry Lipton led off with the latest info on NCCI’s research into temporary total disability. Duration has been increasing significantly over the last 6 years, driven by the recession. Duration increases moderating over the last couple years, likely due to small claims coming back into the system and the improvement in employment.
One of the primary drivers is…SURPRISE our old nemesis, opioids.
The duration of claims with opioids is 50% longer, with some claims seeing disability duration twice as long when case mix adjusted. Opioids were defined as schedule II drugs plus tramadol. Liberty Medical Director David Deitz raised the point that looking at diagnoses and the potential impact of opioids on changes in diagnosis or severity may be helpful in assessing impact.
The next update was on the impact of comorbidities on cost. The work done by NCCI was enlightening. 4% of all claims (MO and LT) between 2000 – 09 had treatments, paid for by workers comp, for comorbidities, with hypertension the most common. These claims cost twice as much as those without comorbidities.
For those hoping health reform is overturned, remember over a quarter of the working age population in Texas and Florida is without health insurance…if reform sticks, many more of these folks will have coverage, and work comp won’t have to pay for these comorbid treatments.
Drug abuse was the second most common diagnosis followed by diabetes and chronic pulmonary issues; about 2/3 of comorbid claimants are male, with a much higher percentage of males diagnosed for drug abuse.
The vast majority of treatment for drug abuse is hospital-bsaed, unlike all other comorbid conditions.
The cost of claims with comorbidities is, not surprisingly higher. When case mix adjusted, comorbid claims cost twice as much as those without comorbid treatments. The audience raise a number of questions and brought up a number of points many of which will be factored into future research by NCCI.
And that wraps it up. Overall, an excellent conference, and no, I wasn’t able to make Peggy Noonan’s talk. Alas.

May
11

NCCI’s second day – state v fed regulation

Posted by Joe Paduda on Friday, May 11th, 2012 | Comments

Current Florida Insurance Commissioner and NAIC Chair Kevin McCarty led off his talk with a description of drug repackaging as a “license to steal.”. I absolutely agree. He expressed optimism when noting the legislative effort will continue next year; on that I am less sanguine.
Most of his talk was about the “incremental encroachment of the federal government into the regulation of insurance.” Noting that insurance has been regulated under McCarran Ferguson for decades, McCarty opined that the current state-based regulation has worked pretty well, if somewhat inefficiently.
McCarty took exception to the new Federal Insurance Office (FIO) created by the Dodd Frank bill. While FIO is explicitly not a regulatory agency, McCarty noted their various functions seem pretty similar to those performed by regulatory agencies. While much of the speech was a pretty dense, acronym-intensive discussion of financial stress tests, bank regulation, McCarty detailed FIO’s various research and reporting functions.
Continuing his advocacy for the state-based regulatory system, McCarty noted that there are very different market needs in different states, which require different regulations, while stating that it is necessary to reduce the frictional costs (his characterization) inherent in the state-by-state regulatory environment .
While McCarty et al may decry the interference of federal authorities in the insurance process, payers may be less negative after considering the additional costs inherent in state-specific regulation. According to a report in Insurance Journal earlier this week,
“Tyler Leverty, a professor of finance in the Tippie College of Business, says that the expenses associated with meeting regulations in every state in which an insurance company does business drive up compliance costs by 26 percent when compared to companies that are regulated by only one state.
“These high regulatory compliance costs reduce the technical efficiency of firms, deter firms from operating in additional states, and increase the price of insurance,” says Leverty.”
Finally, McCarty was asked for his views on the interstate sale of health insurance products, and seemed somewhat uncomfortable with the topic (not surprising as this is one of the main ideas promoted by GOP opponents of health reform)- noting that he wanted some regulatory authority over any out-of-state policy sellers to protect purchasers; McCarty stated a couple times that he did not want to oversell the benefit of interstate insurance sales, but concluded by allowing that they would probably most help with short term policies for college kids etc. There was a caveat; he thought “everything” should be tried, but he was not enthusiastic in that suggestion…

May
10

Hartwig’s take; the economy and P&C insurance

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

We’re drinking from the firehose that is Bob Hartwig’s annual discussion of economic factors affecting the property and casualty industry.
His presentation was – as usual – high energy and entertaining. Example – noting that a Greek default would have little impact on the rest of the world, Hartwig said while “we may see an olive shortage”, a default of an economic entity the size of Alabama will just not matter that much.
It was also very positive.
The quick takeaway is we are close to if not at the bottom of the profitability trough, with profits likely increasing over the next four to six months. Barring natural disasters, of course.
Hartwig sees economic activity ramping up, albeit modestly and unevenly; he also opined there won’t be a double-dip recession. The economy is expanding at about 2.5%, driven by consumer sentiment (responsible for 70% of the economy) despite a very slow recovery in construction. What construction activity is going on is mostly building manufacturing plants and power generation facilities.
The P&C sector’s premium growth will be stronger than AM Best’s projections of 3.8%, but there won’t be a traditional hard market, as there remains a lot of capacity and frequency is favorable. The 28 consecutive months of growth in private sector employment, totaling 4.4 million private sector jobs since January 2010, is also favorable for work comp. However, the depth of the recession was so severe that we’ve still got a ways to go…
The public sector continues to suffer job losses, with a half-million employees shed since January 2010. This adds about a half-point to the unemployment rate, which will likely be below eight percent by the end of this year/beginning of 2013. Fortunately, the impact has been offset from a surprising source; US manufacturing growth has been pretty impressive, with a gain of a half-million jobs since January 2010.
However, there’s a lot of variation in economic performance among and between states, with North Dakota enjoying a three percentage unemployment rate compared to Nevada at 11.3%.
Hartwig talked at length about future opportunities for insurers, mentioning health care, energy and alternative energy, petrochemicals etc all as promising markets.
For some reason he presented a couple slides showing P&C industry performance during Presidential terms; the net is return on equity was highest during the Carter administration. Entertaining if not terribly enlightening…
The presentation will be here when it becomes available.

May
10

NCCI – the state of the line 2012

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

This was the tenth year NCCI Chief Actuary Dennis Mealy gave the State of the Line presentation (I’ll post the link when it’s available).
Claim frequency – on an adjusted basis – was down slightly (a single point). This continues a long term downward trend (interrupted last year by a big bump up, likely driven by employment factors) but the rate of decline may be flattening out.
Total premiums jumped 7.4%, and when state funds are included, premiums were $36.3 billion, down from a high of $47.8 in 2005. The increase was driven by higher payroll and audit results (insurers audit payroll to make sure employers are accurately reporting their employee count and payroll).
Mealy noted that data from Goldman Sachs indicates prices are firming; a survey of agents had over three-quarters of respondents indicating prices were increasing, with 11.5% reporting prices up more than 11%. These were markedly different from results from the 2011 and 2010 surveys. These trends indicate premiums will continue to grow in 2012.
If and when manufacturing and construction employment increases substantially, we’ll almost certainly see premiums rise even more. For now, employment in both sectors is still way under pre-recession levels, although manufacturing is recovering somewhat.
The calendar year combined ratio deteriorated; while the 115 stayed the same, three points of last year’s 115 number was driven by big additions to reserves from a single payer. When you remove that “outlier”, it is clear results have deteriorated.
Accident year losses were a touch lower at 114.
Reserve deficiency isn’t much of an issue as the ‘real’ deficit about half of the reported $11 billion due to accounting practices.
Medical cost per claim was up four points, with total spend (in NCCI states, including state funds) hitting $28 billion. (note California is not included)
Break time…

May
10

NCCI – first take on the state of the work comp industry in 2011

Posted by Joe Paduda on Thursday, May 10th, 2012 | Comments

(I’ll be live blogging from NCCI again this year with several updates throughout the day)
Higher combined ratios, spotty market hardening, spikes in medical costs, ups and downs in claim frequency, more hiring in some sectors – for whatever reason, there’s a lot of interest in work comp this year, and the all-time high in attendance at this year’s NCCI meeting is evidence of this interest.
NCCI CEO Steve Klingel described the work comp market as “conflicted”; some markets are getting better, indicators show positive and negative trends, and frequency is bouncing around a bit too. Here are the highlights.
– the combined ratio for accident year 2011 indicates an improvement, dropping two points to 114. (the calendar year combined ratio was 115, marking a deterioration.
– claim frequency declined in 2011, but the decline was minimal at best at 1%.
– medical costs for lost time claims bumped up four points
– written premium volume increased significantly, up 7.4%. While that’s good news indeed, remember premiums have dropped 27% since 2005. Clearly there’s a lot of ground to make up…
And the big news, for the third consecutive year, operating margins were essentially flat.
That’s no surprise – investment returns are awful, hiring is not where it needs to be, there’s a lot of competition for comp premium.
So, what are the factors, the wildcards that may move the market? Klingel cited major shifts in the economy, potential legal issues with health reform, and political gridlock.
My take is Klingel missed the major wildcard with reform; if PPACA is overturned, the number of uninsured will grow, there will be more cost-shifting to work comp, and we’ll see medical costs increase. And that’s on top of the issues inherent in treating claimants who don’t have medical insurance for their non-occ conditions.
If health reform sticks, the number of uninsured will decline by more than thirty million, there will be less incentive on the part of providers to shift costs to work comp payers, and insurers won’t have to cover treatment for conditions that inhibit healing and return to work.
Thanks to NCCI’s Greg Quinn for providing the details behind Klingel’s presentation. NCCI is pushing social media even more this year; they’ve got a mobile app, social media site, and ten different publications are reporting from the conference.
NCCI was the first industry conference to welcome bloggers and online media, and kudos to them for recognizing early on what has taken others a bit longer to figure out.
Next up – Dennis Mealy’s annual state of the line presentation – I can’t wait…

May
8

NCCI’s 2012 conference – what’s on tap

Posted by Joe Paduda on Tuesday, May 8th, 2012 | Comments

The Annual Issues Symposium starts tomorrow, and here’s what’s on tap.
The highlight for fellow work comp geeks is the State of the Line Report, the annual update on results, cost drivers, and trends delivered by top actuary Dennis Mealy, with Friday’s afternoon research workshop a close second.
There are a couple sessions focused on or addressing the role of the federal government in insurance regulation. There’s some internal conflict in the industry over this; historically payers have chafed under the burden of complying with the whims of fifty-one regulators, while state regulators have proclaimed the primacy of their role. With financial regulatory reforms taking effect (Dodd Frank et al), there’s certain to be a lively debate over who’s in charge of what.
The powers-that-be at NCCI will once again have a keynote delivered by a conservative political figure; this year it is Peggy Noonan, who will be speaking on “America’s Ongoing Quest for Patriotic Grace.” What this annual right-wing proselytizing has to do with workers comp is beyond me.
Finally, the guy who wrote Freakonomics is also speaking; Steven Dubner’s insights into why people do what they do will provide a great counter to the “cold hard logic” employed by NCCI’s economists in their research and presentations.
I’ll be live blogging from the conference; see you in Orlando.

May
7

Colbert’s ‘Word’… Debt Panels

Posted by Joe Paduda on Monday, May 7th, 2012 | Comments

Steven Colbert’s one of the funnier people/newscasters out there – and his piece on “Debt Panels” [opens video] is terrific.
Colbert helps us understand the role of finance in the emergency medicine department, a role that has grown significantly over the last couple years along with the rise of the number of uninsureds…
Hat tip to Care and Cost for the head’s up.

May
5

Congratulations Mitt!

Posted by Joe Paduda on Saturday, May 5th, 2012 | Comments

In what will be one of the more entertaining episodes in Presidential campaigning, GOP presumptive nominee Mitt Romney will have to disavow his success in passing health reform in Massachusetts that now looks to be a major success.
Reform was intended to cover more people and reduce or at least mitigate cost increases.
While coverage did expand, for several years costs went up dramatically as well, leading some to point to the Mass “experiment” as a failure.
First, coverage. The latest data indicate 95% of citizens are insured, compared to 84% of the national population.
The latest information suggests those decrying the Mass reform may have been a bit premature in their assessment.
Small group insurance premiums were up just over one percent last quarter, the second quarter in a row where rates have gone up less than 2 percent. Moreover, two large health plans filed for rate decreases…
Why? What’s made this happen?
Glad you asked. According to Kaiser Health News/NP5,
“…two years ago, the governor directed his insurance commissioner to exercise a little-used power to turn down a requested rate increase because it was excessive. Not every state has this power.
Insurance companies were outraged. But [CEO Andrew} Dreyfus of Blue Cross Blue Shield now says it was a pivotal point.
“It sent a message to the entire health care community and the business community that we had to change,” Dreyfus says.
And change seems to be happening. Insurers have torn up their contracts with hospitals calling for annual reimbursement increases of 8 percent and 10 percent, and negotiated agreements providing for 3 percent, 2 percent and even zero percent increases.”
What does this mean for you?
While there’s no question governments can screw up lots of things in lots of ways, this appears to be one of those times where governmental authority, intelligently applied, is actually solving a problem.
What does this mean for Mitt?
Let’s see; if he takes credit for the result, he’ll be pilloried by the free market/Tea Partiers. Ouch.
If he says it doesn’t work, he’ll be, well, admitting he screwed up.
If he says it will only work in Massachusetts, he’ll be admitting other states aren’t able to fix this problem.

May
2

GOP alternatives to Obamacare

Posted by Joe Paduda on Wednesday, May 2nd, 2012 | Comments

When it comes to health reform, perhaps the only thing Congressional Republicans agree on is they hate ObamaCare.
There’s no agreement on a basic framework much less consensus on an actual bill. Moreover, there are parts of ObamaCare that enjoy solid support amongst many Republicans, complicating the GOP’s efforts to develop an alternative without conceding political ground.
Their dilemma is certainly understandable; as anyone who followed the tortuous path of the PPACA (aka Obamacare), there was precious little consensus among the Democrats who passed the bill. While most had serious issues with various bits and pieces, they held their noses and voted “aye” when pressed.
Now that there’s a distinct possibility that the Supremes will overturn part/some/all of reform, there’s pressure on the GOP to come up with an alternative.
Here’s a few of the more contentious issues.
– requiring insurers accept all applicants is favored by most Republicans (according to Politico) but a) some senior Republicans hate the idea and b) there’s zero consensus re how to actually make that work. Do they forbid upcharging for older/sicker people? Adopt some form of risk-adjustment and/or financial transfer among/between insurers based on the risk profile of their members? Or allow the free market to operate, hoping that insurers will somehow figure out how to insure people with pre-existing conditions at affordable rates?
– taxation is a big issue; one bill sponsored by Rep. Paul Broun (R-Ga.) allows taxpayers to deduct all of their health care costs, while others cite the tax-free status of health insurance as a major cost driver. What looks like the leading bill (at least at this point) also uses the tax code to encourage people to buy insurance.
– most GOP-authored bills allow people to shop for insurance across state lines, which seems to be at odds with other GOP concerns that health insurance should be the purview of the states, and the Feds ought not to be involved
– the elimination of coverage for young adults and kids with pre-ex conditions is a concern to Rep Tom Price, who stated: “That would present a significant void and vacuum in health policy…There will be a need to have some things to fill that vacuum.” Again, many first-term Republicans see no role for the Federal government in health care, making any caucus-wide consensus on the issue doubtful.
– most of the plans on offer include some thyme of malpractice reform, however there’s ample evidence that malpractice reform would have a negligible impact – at best – on system costs. (One authoritative study indicated a 10% reduction in malpractice rates was associated with about a 0.132% decrease in the overall cost of care.)
If the GOP decides it must act, the challenge will be to first convince the Tea Part Republicans that Congress has the authority to do so. While the Republican Party used to be pretty disciplined (especially when compared to the Democrats), last summer’s debt-ceiling fiasco was ample warning that Boehner doesn’t control his membership.
If and when that’s done, next step is to come up with a plan that doesn’t look an awful lot like/have a lot of the same provisions in ObamaCare and make sure it actually expands coverage and reduces costs, as scored by the CBO.
This should be interesting…
Hat tip to California Healthline for the head’s up.