May
5

Workers’ comp – 2016 State of the Line

NCCI Chief Actuary Kathy Antonello’s State of the Line presentation – is the hot ticket at AIS. (Her presentation will be available here right after her presentation ends; the password is Transforming .)

Antonello’s use of new imaging and automation to present data was compelling and highly informative, really helping this non-actuary understand the import of the data and findings, and potential impact going forward.

Key intro points – Medical severity changes remain moderate, but drug costs are increasing at a troubling rate.  Definitions of “employee” are evolving as is the “workplace.

Key data points

  • Work comp net written premium for private carriers up 2.9% to almost $40 billion in 2015. State funds accounted for $5.8 billion in premiums, for a total of $45.5 billion – up from 44.2.
  • WC combined ratio improved to 94, a six-point drop from 2014 and the second best combined ratio since 1990
  • Most recent P&C industry cycle was a seven-year one, shorter than previous cycles
  • Unsurprisingly, net investment income decreased slightly across all P&C lines.

Private carrier details

  • direct written premium decreased in 9 states, with the biggest drop in OK due to reforms.
  • CA and NY had larger than average increases with CO DC and OH jumping by double digits.

Work Comp Drivers

  • Payroll is up 23% since 2010 – a pretty nice increase.
  • Construction employment has led the way, up 17%
  • Frequency continues its long term structural decline, down another 3 points – just below the long-term average of 3.6%
  • Medical is 58% of total benefits
  • Medical cost per LT claim DROPPED 1% in 2015 – more on this later…
  • Indemnity expense up 1 point from 2015 on a per-claim basis.
  • Loss ratio drop of 6 points is by far the most important contributor to the improved combined.
  • Loss adjustment expense (LAE) ratio increased somewhat, due to the improvement in losses.
  • Five-year investment gains dropped to 13 percent, down below the long-term average of 14.1 percent.
  • Reserve deficiency down to $7 billion

The operating gain jumped to 18 percent, a historic high – and far above the long-term industry average of 5.8%

Not surprisingly, all this good financial data is leading to premium price reductions.  Rates are decreasing, with 57% of agents seeing a decrease in rates at renewal in Q4 2015.

Most surprising is the data on medical severity – it is actually tracking BELOW medical CPI increases, a major change from prior years.

This despite a 6 point increase in drug costs, a finding that – argh! – will be discussed in detail in the research discussion which is scheduled at the same time as my panel on regulatory issues…

More – lots more – to come on the medical cost finding.  Spoiler alert – it looks like the reforms in California are working to cut unnecessary medical expenses…with Cali accounting for about a fifth of total work comp premium, that’s a big driver.


May
5

NCCI kicks off…

950 attendees this year – an all time high – as new President And CEO Bill Donnell kicks off the 2016 NCCI Annual Issues Symposium.  Key takeaways from Mr Donnell’s introductory talk

  • near term, solid financial results and continuing profitability
  • longer term, frequency rates continue their structural decline – consistent with other mature economies
  • Donnell highlighted programs at two very large American employers that have dramatically reduced claim frequency and severity.  That’s great – but large employers have a lot more influence on and ability to address these issues than do smaller employers.

What was encouraging – and different – about his talk was a focus on individual claimants, and what employers and insurers are doing every day to help injured workers.  He noted that industry critics don’t focus on these successes, choosing instead to highlight problems and errors.  He called for the industry to do a much better job talking about the good the industry does.

Hear hear.

Clearly Donnell is aware of – and concerned about – opt out.  Given the recent Oklahoma Supreme Court decision, I’m not sure he – or we – have much to worry about.  Nevertheless, his caution is far more appropriate than ignoring opt out.

Donnell’s “word” is the industry is Transforming – many changes in the economy, technology, the workers’ comp industry, employment are all forcing change in workers’ comp.

I agree.

The issue is, how can an industry that is not so much resistant to change as hidebound and unable to move at all – much less rapidly – catch up to the real world?


May
3

On the way to NCCI

Headed to Florida for the annual NCCI AIS confab, one of the best-organized conferences in the workers’ comp world.  Looking forward to NCCI Chief Actuary Kathy Antonello’s State of the Line presentation; will be live-blogging as she reveals the latest data on trends, costs, inflation and drivers thereof.

The powers-that-be have invited Charles Krauthammer back once again; the ever-irascible doc will certainly share his latest views on the political landscape, and for once I’m actually looking forward to it.   If I have to listen to yet another neocon/conservative ideologue, as least this time he’ll be as cranky about his candidate as I am…

A few of the topics Mark Walls, Bob Wilson and I will be covering in our talk on Thursday afternoon will be the impact of the ACA on workers’ comp (spoiler alert – too early to tell), whether the Grand Bargain is still grand and/or a bargain, what’s happening to opt-out, and medical trends.  Should be pretty lively, with ample-yet-polite-disagreement among the three of us.

Attendance is very solid this year; hope to see you there.


May
2

The ACA and employment

Several years ago the CBO (Congressional Budget Office) predicted the Affordable Care Act would negatively, if minimally, impact employment.  Since then, there’s been much parsing of employment data – and way too much credence given to anecdotal reports – by ACA lovers and haters alike. Much of this has been focused on ACA provisions that ostensibly incentivize employers to shift full time workers to part time (<29 hours per week on average).

There’s been much distortion of the CBO’s report as well, most from ACA haters (here, here, and here are just a few examples; a thorough discussion of the issue is here).

In reality, it is still too early to tell what, if any, impact on employment ACA has had.  That said, the most credible information available indicates at most a few hundred thousand workers have seen their hours reduced by employers seeking to avoid insuring those workers.

(I would note that these decisions are not eliminating the cost of health care for their workers and dependents, rather they are shifting the cost to the taxpayer and local health care delivery system (most notably hospital ERs and Community Health Centers))

Moreover, it is and will be very, very difficult to separate out the impact of ACA from that of other economic factors affecting employment such as trade patterns and policies, consumer sentiment, the strength of the dollar v other currencies, global energy markets and the like.

Here’s what we know now.

To date, there’s been little to no change in part-time employment as a result of the ACA. This from a study reported in Health Affairs earlier this year:

[there is] no evidence consistent with the thesis that the ACA caused an overall increase in part-time employment in the United States. Our evidence came from data through 2015, the first year of the employer mandate and the second year of expanded access to coverage through Medicaid expansion and the Marketplaces. As a result, both employers and employees may have still been adjusting to provisions of the ACA.

Another study came to pretty much the same conclusion.  While both used slightly different methodologies, neither of which was specifically designed to compare real-world results to the CBO’s predictions, both indicated we haven’t seen hours worked or number of jobs negatively impacted by ACA.

But, that does NOT contradict the CBO.

First, here’s what the CBO said…

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent [and reduce total compensation by about 1 percent] during the period from 2017 to 2024, [emphasis added] almost entirely because workers will choose to supply less labor.

They went on to note that much of this will be voluntary: spouses will reduce their hours because they will gain coverage under their spouse’s plan; some lower-income folks will reduce their hours so they don’t lose out on a subsidy; some will retire early as they won’t lose health insurance coverage previously tied to an employer.

The net…

Because the longer-term reduction in work is expected to come almost entirely from a decline in the amount of labor that workers choose to supply in response to the changes in their incentives, we do not think it is accurate to say that the reduction stems from people “losing” their jobs. [emphasis added]

CBO also opined that the ACA “also will affect employers’ demand for workers, … both by increasing labor costs through the employer penalty (which will reduce labor demand) and by boosting overall demand for goods and services (which will increase labor demand).”

What does this mean for you?

I bring this to your attention, dear reader, in hopes that it helps provide you with a framework to use when evaluating claims that ACA a) is killing jobs or b) has no effect.