How Are Claims Costs Climbing? | Aug 2014
BY: Rachel Fikes, VP & Study Program Director | Rising Medical Solutions
Year over year, the basic plot line doesn’t change much. As workers’ compensation lost time claims decline in frequency (about 4% a year), the average lost time claims cost goes up (since 2008, about 3% per year). Thanks to increasingly revealing data, we know how costs tend to rise.
The National Council on Compensation Insurance is the source of the low single digit cost inflation trend estimate. Its 2013 annual estimates are indemnity, 2%, and medical, 3% for the country. It publishes state-specific estimates in its state advisories, which can be found on the NCCI website here.
Five major drivers are behind claims cost inflation:
- Claimant wages. Overall, the average worker earns slightly more every year. In addition, the average age of workers when injured has steadily increased and is now averaging over 42 years old. Older workers generally are paid more for their experience and tenure. Their average age since the 1990s has gone from 38 to 43. Some post-recession workforces are entirely over the age of 50.
- Older injured workers recover more slowly. This seems to result from naturally slower healing processes of older bodies and the accumulation of more co-morbidities such as diabetes and heart disease.
- Overall medical inflation. Our national medical “system” appears to guarantee some degree of annual increases in medical costs. The country’s medical CPI has been rising at about 3% a year, of late. As a general rule, workers’ compensation reimburses at a higher rate than does group health and Medicare/Medicaid. This is largely because workers’ compensation has relatively weak bargaining power with providers. Its bargaining power is likely shrinking further due to provider consolidation and higher demand for healthcare services brought by the Affordable Care Act (ACA).
For medical inflation in workers’ compensation, first look at hospitals, which can be aggressive in pricing and often are not well controlled by fee schedules. Our data has even shown what can only be described as hospital “hyperinflation” in certain geographic clusters. To address hospital pricing practices, we’ve seen success in utilizing independent ASC’s and direct-contracting with providers on an episode-of-care basis (versus fee-for-service), particularly in the areas of orthopedics, pain management, and physical therapy.
- Pharmacy. Cost drivers in pharmacy differ so much from other medical services that they deserve special mention. Per-fill costs have been escalating in the high teens due to increased prescription costs. But this can be offset by declines in utilization (fills per claim.) We see this often in Rising’s data.
- Inflationary claims. Today, the most likely type of claim that has inflationary impact are claims that appear “light” initially but evolve into lost-time claims or even high severity claims. Driving these claims to longer durations and higher medical costs are personal health conditions and behaviors, surgeries and pain management. If an organization is experiencing painfully high claims cost increases today, it’s likely due to these “creeping” claims, and not to true catastrophic claims or increasing claims count, although they can be factors.
Claims executives might elect to focus on controlling these inflationary claims. Many advances have been made in the areas of analytics, risk-scoring and early intervention to target seemingly “light” claims in a proactive manner. Also, closer coordination with the PBM will help, as well as utilizing bill review analytics to pinpoint worrisome physician prescribing practices which are often behind high drug costs and long disability durations. We’ve seen these approaches have a positive effect on overall claim outcomes.
In the end, what expertise is needed to control the rise in claims costs? Rising’s 2013 Workers’ Compensation Benchmarking Study, which surveyed 258 claims leaders nationwide, found broad agreement among respondents that disability management and medical management are the two most important core competencies in managing claims. We agree.
Will the 2014 Study find this same broad consensus among claims leaders? We’ll see this fall.