Workers Comp Update 2014



I attended a NCCI Advisory Forum today (September 16, 2014). The NCCI did a very good job in providing an overview of the workers comp market and this article will share with you some of the information presented and my comments. Here a a synopsis to think about, in terms of the current workers comp market, the impact it may have on your book of business, the impact it may have on your employees and your workers comp premiums, and the possible impact on health care in general:


·         There is modest growth in the economy which represents an increase in jobs. An increase in jobs means an increase in workers comp premiums. The percentage increase over the three months from March 2014 to June 2014 is modest and greater than 1.0 percent in several states including Illinois, Florida, Maine, Pennsylvania and Texas. Growth was greater than 0.6 percent but less than 1.0 percent in California, Georgia, New York, and Oregon. Decreases in economic growth during this three month period occurred in Alabama, Alaska, and Vermont.


·         While the U.S. economy is growing, the increase is very modest and likely to remain modest over the next several years. 


·         Employment is still below the level from the recent recession (defined as 2007 through 2009). While non farm employment is almost to the pre recession level, manufacturing and construction employment are well below the pre recession level.


·         Non farm payrolls are about 12 percent above pre recession levels, manufacturing at the pre recession level and construction about 12 percent below the pre recession level.


·         The largest increase in employment is in the number of healthcare employees.


·         The workers comp system continues to improve. New written premium increased approximately $2.3 B in 2013 over 2012. The 2013 calendar year combined ratio was 101 while the preliminary accident year combined ratio for 2013 is 99.


·         Lost time claim frequency, from the recession period to 2012 has declined for all claims. The largest decrease, about 7 percent, was for claims of $50,001 and greater.


·         Of interest was the portion that medical benefits costs in workers comp compares with the total workers comp benefit costs. In general, indemnity payments countrywide are about 40 percent of a claim while the medical portion is 60 percent. In some states however, the medical portion can be around 75 percent (and indemnity only 25 percent). Is the medical portion so high because of utilization costs, pharmacy costs, or from other factors? In at least one of the states with a high medical benefit percentage (73 percent) the possibility of establishing fee schedules for workers comp medical benefits is being discussed/debated.


·         One of the hot topics discussed was the impact (or the possible impact) of the use of medical marijuana. Will coverage be available for “reasonable and necessary” costs if marijuana is medically prescribed under a state law? How might coverage be provided for an injured worker in a state which does not recognize the medical use? Since Federal law has not changed, will that be used to exclude coverage? How will liability coverage be provided to an establishment which legally sells/dispenses marijuana under a state’s law?


Overall it is my understanding the workers comp market is improving. Frequency is down and, as a result, loss ratios are improving. With a continued modest growth in the economy continued improvement is expected. However, the workers comp market will also depend on state regulatory review of actuarially developed rate filings. 


Two important items that may have direct impact on workers comp and for which no results have been estimated or determined are the Federal Affordable Health Act (ObamaCare) and the Federal Terrorism Risk Insurance program Reauthorization Act (“TRIA”). TRIA expires on December 31, 2014 if there is no action by Congress to extend the Act. No one has yet analyzed the possible impact of ObamaCare or the expiration of TRIA on the workers comp system.

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