Today, I’m going to convince you that despite years of continued decreases, work comp premiums are still too high.  And will likely remain too high for the next few years.

That’s how long it will take the impact of reduced opioid consumption to work its way through comp financials. Sure, continued declines in frequency and high employment along with declining worker benefits are also factors – but I’ll argue what’s way more important is the drop in opioid prescriptions.

A decade into this, the dramatic drop in work comp opioid prescriptions is continuing unabated.

• CompPharma’s 16th Annual Survey of Prescription Drug Management in Workers’ Comp [free to download] shows payers have slashed opioid spend by 40% over the last two years.
  
  
• myMatrixx [HSA consulting client] reported a 15% drop in opioid spend in 2018.
• Optum Workers’ Comp reported a 2.9% reduction in opioid spend for the first half of 2019 compared to the first half of 2018.
• CWCI’s just-released report analyzes data from lost time claims incurred between 2008 and 2017:
  • the percentage of claimants receiving opioids dropped 51% over that time period
  • chronic opioid use dropped by 77 percent, from 13% of claimants to 3%
  • acute use declined by 40 percent

My key takeaway from CWCI’s report isn’t the drop in opioid usage, it is that claims without opioids are much less costly, therefore the drop in opioid prescriptions is driving lower claims costs.

Those reductions have yet to be fully factored into work comp rates – so rates will continue to drop.

Key data points:

• Average benefits for claims without opioids were 30% less than for claims with opioids (at 12 months).
• Claims without opioids had 25% fewer TD days than claims with opioids.

The net – “Cumulative savings from the decline in opioids are projected at $6.5 billion for 2010 – 2017 claims.”

Report authors Steve Hayes, Kate Smith, and Alex Swedlow provide suggestions for actuaries on page 15 and in Appendix 4.

What does this mean for you?

Rate reductions haven’t caught up with the reality on the ground. 

Barring major unforeseen events, work comp rates will continue to drop for several more years. 

For those so inclined, an extensive discussion of rate-making is here.

Two seemingly-unrelated papers hit the inbox yesterday; CWCI’s just-completed analysis of opioid usage in the Golden State, and NCCI’s report on 2019 workers’ comp financials.

The key takeaways from NCCI’s report include:

• Premiums are expected to drop 10 percent in 2019, driven by rate/loss cost filings. In other words, losses are declining which leads to lower insurance costs.
• This marks the sixth consecutive year of decreased premium levels.
• Not coincidentally, 2019 is the sixth consecutive year of underwriting profitability.

So, even though premiums are dropping like a rock, insurer profits are better than they’ve ever been.

Why?

Well, declines in frequency are certainly a big contributor. Reduced worker benefits are likely a factor as well – and a big problem we’ll address in a later post.

If anything, investment profits are a drag on profitability (NCCI reports 2018 investment gains averaged 9.2%.

Which brings us to CWCI’s report “The Impact of Declining Opioid Use on Lost-Time Claim Development & Outcomes in California Workers’ Compensation” [emphasis added; disclosure – I provided input as a peer reviewer for the final report]

Key takeaways:

• “from 2008 to 2017, chronic opioid use…declined from 13% to 3% of all lost-time claims (a relative decline of 77%)”
• the strength of the opioids dispensed within the first 12 months of treatment, measured in cumulative morphine milligram equivalents, declined 59% for chronic opioid use claims

Tomorrow – the connection between opioid reductions and premium levels – and what it means for the industry and you.

Friend and colleague Alex Swedlow took the podium at the California Self-Insurers’ Association to discuss what’s going on in the Golden State, and what you need to do to manage your program.

First up – why are California’s admin expenses so unbelievably high?

Well, the medical delivery system is quite expensive.  The volume of medical services delivered is just high – especially for pretty expensive services.

Second, there are few controls that limit demand – we’re talking deductibles and copays – and no shortage of supply of providers willing to meet that demand.

Third, dispute resolution is challenged by lots of litigation, by a UR/IMR process that is expensive and (my words not his) abused by a relatively small number of docs and attorneys.

Fourth – this all drives medical management expenses up.  Waaaaay up.

The result – medical payments that are 58% higher than the median state – and second highest of all states.

Myth bust – there’s no association between Fee Schedule levels and medical costs – so it isn’t a problem fixable by cutting the fee schedule.

Of course, some protested that the reforms – UR, employer direction, IMR, MTUS (clinical guidelines) etc – were going too far and harming workers. Citing the huge influx of UR, they contended a lot of needed care was being blocked.

Except that wasn’t true. In fact, the vast majority of care performed and/or reviewed was delivered – that includes the 95% of IMR requests submitted by applicant attorneys.

The good news is there are fewer UR/IMRs for drugs these days – which tracks a similar trend in drug spend overall  – and in particular a major decline in opioid consumption.

Shout out to Peggy Sugarman who runs work comp for the City and County of San Francisco – she moderated the session, which in this case meant she clarified, provided her own insights, interpreted, and generally added a ton of value. Peggy made me re-think the “moderator” role.

CWCI will be releasing an update on current goings-on in the UR/IMR space, providing stakeholders with specific attention paid to modifications rather than approvals or denials.

What does this mean for you?

Costs can be driven up by admin expense- but without those admin expenses, costs would be even higher.

Work comp and auto payers in many southeastern states have seen a sharp rise in facility costs over the last five years.

While ineffective fee schedules are partially to blame, the real driver may well be politicians’ refusal to expand Medicaid.

When Medicaid expansion was offered in 2014 as part of the ACA, most states took advantage of the option, resulting in a massive decline in uncompensated care. However, the ACA also reduced federal payments to hospitals in tough financial shape, the rationale being Medicaid’s expansion would reduce the need for additional funding.

Not surprisingly, the cost of uncompensated care dropped dramatically in states that expanded Medicaid.

Equally unsurprising was the increase in the cost of uncompensated care for those states that didn’t expand Medicaid.

In the chart below, the gold bubbles in the top right show how much the uninsured rate increased, correlated with uncompensated care’s share of hospital costs.

So, we have a massive revenue shortfall in non-expansion states; Florida, Texas, Georgia, South Carolina, and others, setting up pretty dire financial situation for hospitals.

What does this have to do with workers’ comp, you ask?

This.

The chart – courtesy WCRI – shows a remarkable correlation between non-Medicaid expansion and higher prices paid for workers’ comp.

The reason is simple. Hospitals, especially those in southeastern states, rural and small ones, are desperate for revenue, and workers’ comp is a very soft target.

What does this mean for you?

If you think you’ve got the right answer for facility costs, you’re probably wrong.

What the heck is going on in the Golden State?

For the second year in a row, claim frequency for self-insured employers is up (frequency is the percentage of FTEs that file a work comp claim). Over the two years the total increase in frequency was 12.4% while actual claim counts rose 10.8%.

Meanwhile, over that same period, work comp premiums declined…(also from CWCI); driven mostly by a drop in premiums charged for covered payroll (so this wasn’t due to fewer employees covered by work comp).

What is going on here?

For self-insured employers, it’s not more workers; the number of FTEs marginally increased – and frequency accounts for employee count variation. But, those workers are suffering injuries/illnesses slightly more often.

Insurers’ premiums are driven by payroll, past and projected future claim counts and costs – but also by insurers’ business priorities. With work comp insurance profits remaining high, it is indeed possible that underwriters are ignoring warning signs in their pursuit of market share and more premium dollars.

This has happened before – and it always ends badly.

It’s also theoretically possible the “LA Basin Effect” (cumulative trauma claims inspired by unscrupulous doctors and lawyers in the Los Angeles area) is having a disproportionate effect on self-insured employers. I kind of doubt it, as large employers are more attuned to this type of mischief than smaller, insured employers.

There’s another possible factor affecting premiums that I’m pursuing; too early to dig into it but suffice it to say that it might well offset the premium impact of any frequency increase.

What does this mean for you?

“I am on the verge of mysteries, and…the veil which covers them is getting thinner and thinner.” Louis Pasteur