Insight, analysis & opinion from Joe Paduda

Mar
27

Victor on Comp

Workers comp in a dozen years MAY look a lot different that it does today.

That’s the take from Rick Victor PhD, former CEO of WCRI, who discussed a number of potential factors that might actually increase work comp claim counts a LOT at the WCRI 2018 conference.

One was case-shifting, an oft-cited but generally poorly-researched factor that most of us think happens all the time. I’m not so sure.

According to Dr Victor, factors that might increase case-shifting include:

  • weakening of the ACA = 20 million more uninsured
  • higher proportion of the population is on high deductible plans – and they can’t afford the deductible.
  • providers looking for higher reimbursement

Another is the shortage of labor, driven by an aging workforce and current tight labor market. Factor in the possibility that the workers left to be hired are not as strong, motivated, employable, and diligent as the ones already working, and therefore are more likely to file work comp claims, and Dr Victor posited injuries may increase.

Interesting thought experiment, especially given the current Administration’s remarkable ability to not understand that our economy:

  • benefits from immigrants,
  • desperately needs them today, and
  • even more desperately needs them in coming years.

The central premise, that labor shortages and a robust economy will dramatically increase claims, perhaps as much as 50%, just doesn’t make sense.

The rise in robotics, replacement of human intelligence with Artificial Intelligence, autonomous vehicles and trade policy all are very powerful arguments that claims will actually decrease – at a rapid rate.

What does this mean for you?

Unless technology stops evolving, claims will continue to drop.


11 thoughts on “Victor on Comp”

  1. Joe,

    I don’t want to sound like a broken record but, ….

    The chart above uses the terms WC Claims and WC Cases not frequency. As we have discussed before, two very different measures – Amount vs. Rate. If the exposure base raises at a faster pace than the number of claims then you will have a Frequency decline even with the increase in the number of claims.

    I think to be fair to Rick, there should be clarification on what he was saying about claim occurrences vs. claim frequency. Unfortunately, I was not able to make the conference this year so I did not hear his remarks. But, knowing Rick, I am sure he was specific with his terminology.

  2. Real unemployment (U-6) as reported by the Bureau of Labor Statistics was 8.2% in February, 2018. This is a level most folks would consider too high. This figure includes the underemployed and discouraged workers. So after 8 years of what has been an unprecedented economic expansion, there are still millions of Americans without gainful employment. Your comment about the Administration not understanding our economy could also be equally applied to your three bullet points above.

    1. Steve – thanks for the comment.

      I’m confused by your comment that U6 at 8.2 percent would be considered “too high”. Outside of your strawman argument that “most folks” would consider this “too high”, what data do you have to support that claim?

      In fact, the February 2018 U-6 rate is well below the average of the last 20 years.

      http://www.macrotrends.net/1377/u6-unemployment-rate” alt=”U-6 historical rate

      Second, which set of bullet points are you referring to, and are you saying i don’t understand the role of immigrants in our economy? If that is your assertion, pray tell us where my understanding is wrong.

      If I misunderstand your assertion, please clarify.

      cheers Joe

      1. Joe, my data was the February BLS report that depicts U6 unemployment at 8.2%. Incidentally, many non-governmental sources believe that figure is too low. I was referring to your comments on the role of immigrants insofar as there are many Americans who still would like to be gainfully employed.

        1. Steve – thanks for the response.

          I understand that’s where you get your number, my question is, given that’s well below the average over the last two decades, who are the “most folks” who believe that is too high, and why? I provided the link to that data in my response. Here’s another source, which clearly indicates the current U-6 unemployment rate is well below the average of the last 40 years. – http://www.surlytrader.com/u6-unemployment-during-the-great-depression/

          The role of immigration and the economy is well-studied, and the evidence is clear that immigration is a net plus for the economy. Sources are below. I would agree that there are some jobs that would be filled by current citizens if wages were raised enough, however businesses seem loathe to do so. I’d also note that here in rural upstate New York, labor-intensive dairy farms cannot find Americans willing to do the hard labor they need even for wages above $15 an hour. So, they have to rely on immigrants – legal immigrants.

          We seem stuck in a conundrum; we all want cheap stuff, and we all want to make more money. That is an unresolvable issue.

          Wharton – http://budgetmodel.wharton.upenn.edu/issues/2016/1/27/the-effects-of-immigration-on-the-united-states-economy
          Bloomberg – https://www.bloomberg.com/view/articles/2017-03-24/immigrants-are-making-the-u-s-economy-stronger

  3. Rick’s presentation was valuable as a call to arms on certain issues, but it does rely heavily on extrapolations that are, at least in my view, unlikely to hold up if we confront a shrinking labor pool:

    – Investment in automation would likely accelerate in the event of a shortage of skilled workers
    – Older workers would stay in the workforce longer as incentives to do so (e.g., compensation responding to supply/demand) increase
    – Necessity would lead to changes in attitudes and policy toward immigration
    – Higher injury rates among marginally attached workers would converge to norm as they (happily) become a regular part of the workforce.

    The experiences of Germany and Japan, highly developed countries with shrinking labor pools not historically welcoming of immigrants, could be instructive. As for case shifting, the ACA does not seem to have had a dramatic effect in the other direction. Rick’s premise is that having enjoyed health insurance for a while, people would behave differently were they to lose it. I hope we don’t have to find out.

    1. Russ – thanks for the comment. Your point about Germany and Japan is instructive; Germany is welcoming immigrants for a simple reason – it has to.

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Joe Paduda is the principal of Health Strategy Associates

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