Many high-injury rate jobs that drive lots of work comp premiums and services won’t exist in ten years.  And lots of low-injury rate jobs will disappear as well.

How we prepare for this – or rather how you prepare for this – will separate the survivors from the corpses.

A bit of historical perspective; twenty-plus years ago when I worked at MetraComp, Lockheed Martin’s Fort Worth plant was a customer.  The workforce there was highly trained, averaged around 48 years old, and paid very, very well to make fighter jets.

MetraComp’s contract with LM had a big success fee baked-in.  MetraComp would be rewarded for improving disability results, and penalized – rather painfully – if future results were close to or, God forbid, below historical results.

Then the Air Force decided to stop buying new fighter jets.   The average worker had 17 years to go till retirement, was making great money, and there were zero jobs in the area that paid anything close to the hourly rate, much less provided LM’s benefits.  Add in the physical nature of the job – crawling around inside really small spaces attaching tiny parts requiring lots of repetitive movements.

The injury rate jumped, while opportunities for re-employment suddenly dried up.  MetraComp got killed.

Today, we’re looking at a future with a whole lot of Lockheed Martins.  

A robust and well-documented research project estimates almost half of US employment is at risk of disappearing.

Here’s just one industry where we’re going to see big changes.

Trucking employs 3.5 million drivers today, paid about $40k a year.  Good-paying jobs that don’t require a college degree, a rarity in today’s economy, jobs that will disappear with autonomous driving. When they do, jobs in truck stops, motels, and restaurants will dry up.  And the folks who drive the trucks and work in those truck stops, motels, and restaurants will not spend their wages in small towns, rural areas and cities.

BTW, truck driving is the most common job in 38 states…

For now, trucking is a great business.  For now.  Sure, there aren’t enough drivers today, but those jobs aren’t going to exist in 10 years.

So here’s the two questions you need to ponder.

Are you insuring/serving a thousand Lockheed Martin jet factories?

Where are you going to re-employ the truckers, hotel staff, wait staff, and mechanics? 

First, WCRI’s annual meeting is coming up quickly.  The fine folks from Cambridge Mass have added a second panel on opt-out.  You’ll hear from a regulator, employer, workers’ advocate and industry spokesman after listening to a “point-counterpoint” from two of the leading experts on opt-out.

For anyone who’s remotely involved in or affected by work comp, this is a must-do; you’ll get a solid education on one of THE key issues in workers’ comp.

Second, Tennessee’s adopted the ODG treatment guidelines and formulary; they go into effect Monday. More precisely, as of 2/28/16, the formulary applies to refills of scripts written before 1/1/16.  For newer prescriptions, the effective date is August 28, 2016.

Tennessee becomes the fifth state (after WA, OH, TX, OK) to adopt a drug formulary; perhaps a dozen others are working on formularies.

I’ve been far from diligent in posting of late – now that a couple projects are almost wrapped up, thing should get back to normal.  Thanks for your forbearance!

Back from vacation and catching up on all the goings-on; some pretty big news out of California re work comp these days…

We’ll start with the highest impact news, and that is the California Supreme Court’s “decision” to let stand a lower court ruling that the IMR process is not unconstitutional (sorry for the double negative) AND that the IMR process does not violate an injured workers’ due process rights.

While there remain constitutional challenges to the IMR process, the Court’s decision to not review the lower court’s ruling implies these other challenges may face a similar fate.

Implication – business as usual for California.  As Court rulings supporting the IMR/UR process continue to pile up, it’s becoming increasingly clear that IMR is not going away.

Serendipitously, CWCI just released its latest analysis of IMR outcomes for 2015 (they work fast out there in Oakland!).  Here’s the need-to-knows:

• IMR letters increased 19% from 2014 to 2015.
• Turn-around-time (TAT) is pretty stable – and a lot faster than in 2014
• UR decisions were upheld by IMR 88.6% of the time – essentially identical to previous results.
• Drugs were the leading category of service appeals yet again, with opioid scripts topping the list as the drug class most-commonly appealed.  88% of denials were upheld.
• Compounds accounted for 11% of requests; denials were upheld 98% of the time.
• 10 physicians accounted for 34,700 IMR decisions – 11.8% of the total

Implication – Many docs are not learning – or are willfully ignoring established precedent for medical necessity/appropriateness.  The 10 docs who average 10 letters for every calendar day are jamming the system with futile requests, knowing full well that 9 out of 10 will be rejected.

Why?

As California moves to adopt a formulary next year, we may well see a rise in IMR requests when these unteachable docs continue to prescribe drugs that are inappropriate.

Thanks to Bob Young at CWCI for the heads’ up; CWCI’s take on the Court case is here.

Another item worthy of your attention – Congratulations to Rick Victor PhD; the founder and former Executive Director of WCRI has been named a Senior Fellow at the just-established Sedgwick Institute. Rick is a good friend and one of the most honorable people I know. It is great to see he will stay involved in the industry.

Just realized I’ve yet to post my annual Top Ten Predictions for Workers’ Comp – my apologies!

Here we go…

1. The comp market will soften pretty much everywhere*.
   As rates continue to come in flat or a few points down, the equity markets flounder about, and interest rates stay low, there’s going to be more capital than places to put it. So, expect work comp insurers and insurance funders to keep looking to expand market share – which will keep rates low.
2. *Except in California, where rates are up – and will stay there.
   The uncertain regulatory and judicial environment – at many levels and dealing with many aspects of comp – has made just about everyone nervous indeed about the financial future of the industry. Until there’s some clear direction and these ridiculous court cases are put to bed, the market is going to push prices up and availability down.
3. Liberty Mutual will continue to de-emphasize workers’ comp.
   Which, given the company’s improved financial performance of late driven by personal lines’ profitability coupled with off-loading a huge chunk of legacy claims liability to Berkshire Hathaway, is a smart move.  However, this does open up opportunities for other insurers and those looking to deploy capital.
4. Private equity’s role in the vendor market will decrease – a lot
   After years of intense interest, private equity investors’ interest in workers’ comp is waning rapidly.  There are several reasons for this, including the most obvious – the market has been over-heated for far too long.  In addition:
   1. Upheaval in the credit markets makes debt financing a lot harder to come by – and somewhat more expensive.
   2. The past consolidation means there are fewer decent-sized assets (>$10 million in EBITDA) to buy
   3. Strategic buyers are winning more of the deals because they can generate more earnings thru consolidation – United Healthcare buying Catamaran (owner of Healthcare Solutions) and Helios, EXAM buying various small companies, Xerox acquiring Stratacare, York buying MCMC are all examples.
   4. Partially due to strategics, prices have been historically high for a very long time. Double-digit multiples are likely unsustainable for much longer – and certainly not in a PE-driven marketplace.
   5. Some recent deals have not worked out so well.
5. A half-dozen – or more – states will adopt drug formularies
   Here’s hoping they integrate formularies with utilization review and a very solid and efficient review process.
6. Opt-Out will not gain much traction
   The bad behavior of bad actors will significantly hamper efforts to advance opt-out legislation.  That, and the lack of any real problems in most states’ workers’ comp systems.
7. We will see a couple/several bundled payment pilots
   Gaining traction rapidly in Medicare and the group/individual health businesses, we can expect bundled payments for orthopedic care to take place in several locations. Initial reports indicate Illinois (!) and – of course – California may be on the leading edge.
8. PBMs and payers will make even more progress reducing the use of opioids
   The work comp world has a lot to be proud of here.  After years of enabling opioid use, we – all of us – are doing a much better job stopping initial scripts, working to wean long-term users off opioids, and thereby really helping people and companies. Expect opioid use to drop again in 2016, especially for new claims.
9. A couple of large, vertically integrated delivery systems will make significant moves into occupational medicine
   Work comp pays well (in most states), is a feeder for orthopedics, gets insured people into the health system, and diversifies revenue sources.  Delivery systems are looking for diversification, and their large infrastructure lends itself well to work comp.
10. There will be big changes at OneCall
    With debt trading in the low eighties, pressure from debt holders on owners and management to deliver the numbers, management shuffles and continued challenges with customer service, I expect OCCM will go thru some significant changes this year.

That’s it – and I’ll check back in this summer to see how I’m doing.

What are your predictions?