Medical costs are rising much faster in workers comp than in group health. Over the last ten years, WC medical trend has been going up more than twice as fast as overall medical inflation. Medical is now almost 60% of claims costs and is projected to hit 70% within ten years.
Why?
Simple, really. Workers comp payers just don’t get it. They don’t understand that medical drives everything. Sure, they may pay it lip service, may ‘think’ they are controlling medical by implementing discount-based PPO networks, bill review, and case management/UR, but these programs have been in place for years – and medical trend has increased during those same years.
If the industry doesn’t figure it out, they will go the way of the group health indemnity payers – the Home Life’s, Phoenix’, Mutual of Omaha’s, Travelers’, and Met Life’s. These insurance companies and their competitors dominated the group health industry in the eighties. To these insurance companies, ‘medical’ was a line item on a loss run, a cost of doing business, a black box to be addressed with ‘cost containment’ programs.
Now, almost without exception, these big insurers are out of the health business, killed off by HMOs who understood that their business was not insurance, but health care.
We are now at that point in workers comp. Most of the senior people in workers comp payers don’t understand that they are in the medical business. They think they are insurance companies that prosper by risk selection and financial wizardry. They evaluate their managed care programs by network penetration and savings below billed charges, by denied procedures and slashed bills.
They are saving themselves to death. Instead of bill reductions, payers should be looking at cost per claim. Replace network penetration with physician performance evaluation, based on total outcomes. Stop looking at denied procedures and start identifying the providers who do a great job, send claimants to them, and leave them alone.
What is scary is that many in the industry think they are making progress. They are plodding deliberately along, studying, evaluating, debating, discussing, re-organizing, considering, meeting, presenting, recommending.
Just like the indemnity insurance companies did right up until United HealthCare ate their lunch.
What does this mean for you?
In ten years, many of today’s largest workers comp payers will be out of the business.
How about you?

Liberty Mutual’s announcement that profits dipped slightly in 2007 (albeit from a pretty solid 2006) looks to reinforce the impression that the workers comp market is softening.
Anecdotally other writers in New England note that Liberty is pursuing risks in the $100k and up range very aggressively – and this is not just holding on to current policyholders, but new risks as well.
Liberty is not the only one facing declining prices, and workers comp is not the only line. According to a recent study, pricing for liability, D&O, and property coverage is also decreasing.

For Coventry, 2007 was an excellent year. Total revenue (including group and medicare) came in just short of the $10 billion mark, the commercial group medical loss ratio (MLR) was a stellar 77.3%, and there was modest membership growth in group, Part D and the individual health lines.
The workers comp business, which is under the “specialty business” division at Coventry, also produced solid numbers. Revenues for the quarter were up 4% over the previous quarter, from $156.8 million to $163.1. But this doesn’t begin to tell the whole story.

Continue reading Coventry work comp’s fourth quarter results