Insurance executives’ top concerns in the workers’ compensation industry include medical inflation, the shifting workplace and workforce, economic uncertainty, and rate adequacy, according to the National Council on Compensation Insurance’s (NCCI) recently conducted annual Carrier Executive Survey. “While these results are somewhat consistent with NCCI’s recent surveys, executives also noted the emergence of new, complex topics that they are watching closely heading into 2024,” states NCCI.
Among these issues and concerns, medical inflation and the changing workplace and workforce appeared to be the most concerning for CLM members and fellows.
Medical Inflation
“Since 2019, workers compensation medical severity has grown at 1% annually. At the same time, medical indices show that price pressure is moderate, in the 2.5% to 3.5% range annually. That tells us that there are other factors in the mix offsetting overall increases in medical claim costs,” states NCCI in its report. “The mix in medical conditions treated and the type and volume of medical services all contribute to changes in medical costs. In addition…fee schedules in most states are functioning well as a control mechanism for most categories of medical costs. Projections from the Centers for Medicare & Medicaid Services (CMS) for the Personal Health Care index remain in the 2.5% to 3.5% range for 2024 through 2031.”
Several CLM members and fellows agree that medical inflation as well as the shifting workplace and workforce are major concerns. CLM fellow Angela Cabado, director, risk management—claims for Marriot Vacations Worldwide located in Orlando, FL, notes, “Employers can impact indemnity and expense to a much greater extent than medical, and so the combination of rising medical costs, medical employee turnover and shortages, and private practices becoming part of large facilities can come together to really impact the medical costs in workers’ comp in the coming years.”
Cabado discusses some actions that she is taking: “I am currently focusing on high quality nurse triage and telehealth services, as well as developing relationships with our local urgent cares. Prevention of losses/reducing frequency is also key."
Kirsten L. Kaiser Kus, capital member, Downey & Lenkov LLC, shares that, from her perspective in Crown Point, Indiana, “Rising medical costs are always a concern. We are seeing workers that are working much longer past traditional retirement age, which in turn is causing more significant and costly treatment for aging workers that are not as quick to heal and reach MMI (maximum medical improvement) as their younger counterparts. We have to keep in mind when opposing counsel are claiming permanent total disability for these workers that they likely would not have worked 500 more weeks (which is what they are entitled to under a permanent total disability claim in Indiana) and that we as defense should factor that into our defense and mitigating costs for our clients.”
Kaiser Kus adds, “Another concern for us in Indiana is the legislation that has been proposed that would allow workers to pick their own doctors and direct their own treatment. Right now, the carrier directs and authorizes the medical care for workers in Indiana. If this does change, we can expect to see our medical costs rise as well. There is a slim chance that this legislation will pass, but it is up for review and we will know more in June 2024.”
CLM fellow Kapil Mohan, senior vice president of Gallagher Bassett, states that “fee schedules actually help control medical inflation in workers comp, and thus inflation tends to be lumpy as fee schedules are updated. However, claim/treatment mix can still drive higher cost in workers comp claims.”
Mohan continues, “Gallagher Bassett is very focused on driving indemnity and medical costs down and help our clients manage these effectively, while ensuring the best possible outcomes for injured workers. This is done through: 1. AI-based model that flags claims that might go into litigation, which allows us to intervene sooner; 2. Clinical ecosystem that does a few things: (a) Tracks medical treatment against evidence-based medicine guidelines. This allows us to intervene when a claim deviates from treatment guidelines. And (b) AI-based model that identifies the need for assignment of clinical resources, which helps ensure that resources are selectively assigned to the claims that would benefit the most.”
According to Cheryl Wilke, partner, Lewis Brisbois, “The focus by employers and carriers on safety and accident prevention has resulted in a measurable decrease in the frequency of injuries and claims.” However, “Unfortunately, the continuing increase in medical costs has offset much of the benefit of the reduction in frequency. Employers and carriers will continue to search for meaningful ways to reduce medical cost but remain compliant with the statutory requirements to provide accessible care to employees.”
Furthermore, “From a carrier perspective, providing telemedicine services separate from nurse case management in those venues were allowed and finding ways to capitalize on pharmacy management will remain important investments for reduction in overall claim cost.”
Lastly, according to Wilkes, “it is anticipated that the new use of weight loss injections and medications will be a key compensability frontier in 2024. Specifically, for those claimants whose weight is a “hinderance or obstacle” to their medical care for compensable injuries, it is likely that claimant’s counsel will seek to have weight loss drugs and injections authorized and paid for through the workers’ compensation system. In some respects, this may be less expensive than the cost of weight loss surgery, which in some forums has been ordered to allow for surgery. However, weight loss for the treatment of non-surgical issues such as knee, hip and lumbar rehabilitation may be demanded by claimant’s counsel. This is anticipated to be a key litigation issue this year.”
Changing Workplace and Workforce and Economic Uncertainty
NCCI notes, “The changing workforce includes telecommuters, gig workers, aging workers, inexperienced workers, and an overall shortage of workers. Carriers noted that they’re evaluating how this new dynamic changes the profile of workplace injuries and what losses might look like in the future.” NCCI’s analysis has shown that “Increased labor force participation especially for prime-age workers (ages 25 to 54), is easing worker shortages. Despite the focus on returning to the office, remote work and hybrid schedules are persistent. And they are expected to be lasting effects of the pandemic and key contributors to lowering frequency.”
As far as economic uncertainty, NCCI states, “Many executives noted that while wages and consumer inflation are rising, workers compensation loss costs and rates are declining. While employment is strong and economic growth is solid, they question whether the labor market will start to stabilize or if wage inflation is the new normal.”
Wilkes notes, “The transformation to a ‘work from home’ and Zoom workforce will continue to reduce claim frequency by eliminated travel and facilities risk. However, there has also been a sharp increase in psychological claims in those states which allow those claim[s] independent from a physical injury.”
Mohan adds, “While the last couple of years have seen a considerable spike, wage growth is now trending down. Further, it is not significantly higher than the long-run average. In fact, average wage growth in the last decade (2010-2020) was an aberration due to the after-effects of the great recession and low interest rates. While this has affected wages and thus indemnity payments more recently, we don’t believe this to be a sustained long-term driver.”
Furthermore, “Claim frequency is down due to the broader secular economic trends…the shift to work from home (though more prevalent in office workers) has also had some impact. Focus on return to work–another AI-based model that tracks disability duration and flags claims that are getting close to MMI to ensure appropriate return to work discussions/actions can start.”
Rate Adequacy
“Executives expressed concerns about the steady decline in rates and loss costs. Questions arose about whether the data and analysis currently being used are sufficient to evaluate potential risks to the long-term financial health of the system,” explains NCCI. “Carriers are anticipating it to become more challenging to maintain profitability in the market.”
Despite these concerns, however, NCCI’s workers compensation data shows “a strong and healthy system. NCCI expects a 2023 combined ratio under 100, which would be the 10th consecutive year of underwriting profitability.”
The 2023 Carrier Executive Survey includes responses from 101 executives representing 98 companies, according to NCCI.