I’m going to skip over two am speeches – while I could indulge my inner pundit and discourse on Charles Krauthammer’s highly selective use of data in his conservative monologue/analysis of President Obama’s psyche and disuss the insights of Arthur Laffer, he of the widely-discredited “Laffer Curve“, the pm sessions were far more interesting. This slideshow could not be started. Try refreshing the page or viewing it in another browser. Frank Schmid had the honor of conducting the final report at the 2011 NCCI Annual Issues Symposium, and he was well worth the wait. Dr Schmid discussed physician fee schedules, price levels, and ‘price departure’. Today’s NCCI report on the near-term future of workers comp should be required reading for work comp execs.
I do have to provide just one note re Laffer…
Laffer was not only THE supply-side economist; he was also the guy who in August 2006 famously said: “The United States economy has never been in better shape.” Laffer even bet stock broker and UC Berkeley alumnus [and Ron Paul adviser] Peter Schiff a penny that the economy wouldn’t crash.
Barry Lipton led off the research discussion with a drill-down on changes in frequency.
Building off yesterday’s announcement that frequency increased dramatically in 2010, Barry provided background on which types of industry classes (what kinds of jobs in what industries) were seeing what changes in frequency and the relationship of payroll to severity.
Barry was followed by Harry Shuford discussing older workers and their impact on workers comp. This is rather an important topic as older workers – those over 55, are becoming an increasingly large part of the workforce. Shuford put uo a slide that clearly indicated claim frequency variation between age groups essentially disappeared over time. That is, there was wide variation in claim frequency (how often workers are hurt) among age groups in 1994, but very little variation in 2009.
This held true when corrected for job mix. Moreover, severity (cost of the claim) was pretty consistent regardless of age group (for workers over 35, while costs were lower for workers under 35). With that said, there was a rather significant difference in severity when the two groups (above and below 35 years old) were compared, likely caused by the different mix of injuries sustained by the two populations. In fact, about half of the difference in cost was attributed to injury type.
Disability duration was (unsurprisingly) longer for older workers, but a good chunk of the difference was due, again, to the different injury types incurred by the two groups. After considering the various adjustments, medical cost variation was pretty minimal.
The net is most of the impact of baby boomers is “already there”. That is, we likely won’t see much of an uptick in severity due to the aging population in the future.
Schmid reported not results, but “findings” related to a lot of really intriguing issues. To wit
– how do price and quantity change in response to changes in fee schedule?
– what is the rate of inflation in MD services?
– what is the difference between fee schedule and the actual prices paid, known as ‘price departure’.
– do physicians increase or decrease the quantity of services if a fee schedule declines? are these permanent changes? are they symmetric (reversing the fee schedule reverses the response)
Frank and his colleagues looked at the impact of FS changes on physician service categories and total physician services. I won’t get into the methodology – mostly because it’s way too complex for me to understand, much less describe. NCCi examined four states, FL GA MD and UT.
Florida’s fee schedule increased significantly in January of 2004. Interestingly, prices paid increased when the FS went up, but prices, which before had been about 5% less than FS, were about 10% less after the increase. (note this is consistent with internal data HSA has from payer files). This was even more noticeable with prices for physical medicine, where prices went from 7% below FS to about 25% below after reform. A couple years post-reform, prices actually rose.
The opposite occurred in Maryland, with prices paid actually increasing after the fee schedule was changed midway thru 2004.
Schmid broke this down by actual types of service – evaluation and management codes, etc; the discussion of radiology in Florida was particularly interesting, as Schmid noted that “not only do prices respond to fee schedule changes, but fee schedules respond to price changes”.
There’s a lot of very useful, and interesting information here, and much more to come. I applaud NCCI for digging deep into the pricing and fee schedule issue, as my sense is there’s not near enough understanding of the inter-relationship between price and fee schedule. Future plans are to provide actual results across a score or more of states by the end of the year.
This is great stuff.
Here are the soundbites.
– indemnity costs will continue to rise, but very slowly.
– frequency will likely not increase.
– medical cost inflation will trend upwards.
For those interested in more detail, NCCI’s full report is here. [opens pdf]
I’m struck by the double-edged sword that drives workers comp; costs are held down because wages aren’t going up, and permanent, full-time employment isn’t likely to increase significantly till mid-year, keeping frequency low. Yet good-payng jobs with available overtime, and lots more of those jobs, are exactly what the country so desperately needs. I’d also note that the more jobs there are, and the higher paid they are, the more premium is created.
The bulk of the report is a thorough and highly readable discussion of the future labor market in the US, the factors influencing employment growth and a dissection of the impact of structural and cyclical drivers. Overall, a very well done synopsis with much grist for the strategic thinker’s mill.
The real driver has been, and will continue to be, medical costs. With medical price inflation forecast to rise at almost three times the overall inflation rate , the moderating influence of low indemnity costs will be more than outweighed by medical inflation.
I’d note that the above paragraph only speaks to the impact of price on medical costs; as we’ve all come to understand, utilization is the big medical inflation driver.
Simultaneous with the release of the NCCI report comes WCRI’s analysis of medical costs in Wisconsin (hat tip to WorkCompWire for the head’s up.)
While one state does not a national trend make, WCRI’s report that the Badger state’s medical costs per claim grew twelve percent from 10/07 to 10/08 should make anyone sit up and take notice.
That 12% annual medical inflation rate was driven in large part by increasing payments for outpatient hospital services.
There’s lots more evidence of higher medical costs and their impact on workers comp, but alas I’m on vacation this week and promised to limit my blogging to a half hour a day.
This slideshow could not be started. Try refreshing the page or viewing it in another browser.
Frank Schmid had the honor of conducting the final report at the 2011 NCCI Annual Issues Symposium, and he was well worth the wait. Dr Schmid discussed physician fee schedules, price levels, and ‘price departure’.
Today’s NCCI report on the near-term future of workers comp should be required reading for work comp execs.