wc claim cost reduction strategies for contractors
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WC Claim Cost Reduction Strategies for Contractors
WC Claim Cost Reduction Strategies for Contractors Willis Claim PracticeSeptember 12, 2013The information in this presentation was compiled by Zurich American Insurance Company and Wilils from sources believed to be reliable for informational purposes only. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this presentation, including any information contained herein. 5 Key Issues for TakeawayWC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severityAging Workforce and Obesity affecting WC IndustryTwo factors (people) determine the WC Claim OutcomeKeep ScoreYou need to manage the medical, especially the drugs
1Key Issue #1WC Trends indicate economy is recovering, frequency is down, severity is up, recession recovery driven severity
2Employment slowly recovering
..Along with industry payrolls
3Economy RecoveringSignificant recession impact, very slow recoverySource: Bureau of Labor StatisticsFrequency DownInjury and Illness Incidence Rates Cases per 100 Full-time Employees
4This chart shows trends in the Incidence of workplace Injuries and Illnesses as tracked by the Bureau of Labor Statistics and OSHA. While it doesnt track workers compensation claims per se, its often used as a good proxy for WC. The trends observed are very similar to workers compensation frequency trends reported by say NCCI, and there is a great deal of industry and state detail available with the BLS data.In this chart, we see the results for all private industry, and the 2 major components: goods and services. Note that the rate of injury had been declining consistently between 2003 and 2009, but has since flattened. This is reasonably consistent with published studies, which find that frequency declines during a recession, but then bounces back during a recovery. In the current case, trends continued to decrease through 2008 and 2009, but then flattened, given the very sluggish current recovery (compared with historical norms).The following slides show how these trends varied for Goods and Service producers, respectively.
4Frequency & SeverityBy State : All WC Claims5In this case, weve looked at a specific policy year, developed to ultimate.
Note, theres a wide disparity in the frequency and severity experience for different states: The 3 reference lines represent different Workers Compensation costs per employee.The red line is the highest, about $1,000 per employee . These are least competitive states (MT, DE, AK, OK, and CA)The blue line is the middle, about $500 per employee. Most states huddle along this line.The green line is the lowest, about $250 per employee. These can be thought of as the most competitive states, from a WC cost perspective (These are VA, IN, TX, AR, and DC)
The fundamental messages, though , are that state mix is and important driver of cost, and that one can achieve the same cost with different combinations of frequency and severity. 5
Frequency and Severity Lost-Time Claims for all NCCI states
Frequency: -3% per yearSeverity: +6% per year(7% Medical; 5% Indemnity)6Data developed to Ultimate; 2011 preliminary6This slide shows the overall trends in WC over the last 1.5 decades. The data is that compiled by the industry organization: National Council on Compensation Insurance.
During that time we have seen:The frequency of claims decreasing at a rate of 3% per year on average;Severity (or cost per claim) increasing at 6% average per year driven by An 7% per year average rise in medical costsA 5% per year average rise in indemnity (lost time, permancy) costs.
A marked disruption in these trends as a result of the recent recession., with a blip up in 2010 frequency, and a flattening of indemnity (wage ) costs.
But, overall, the industry has benefited from the tailwind of decreasing frequency; but a headwind from increasing severity.
Also, multiplying these two together gives us WC costs per 100,000 workers. This has grown at 3% per year over the 15 year period, roughly in line with average payroll trends. Thus, as a % of payroll, WC costs have been roughly stable.
SeverityCost per Claim Trends: Lost-Time
Cost per LT claim at 12 months: Trending higher for SIC 15 (Building Construction)Roughly flat for SIC 16 (Heavy Construction) and SIC 17 (Specialty Trades)2010 dip and 2011 bounce likely recession relatedDeveloped cost (at 60 months) is roughly 2x that for 12 months77Key Issue #2Aging Workforce and Obesity affecting all WC Industry
8AGING WORKFORCE Avg. age of injured workers rising, higher average WC cost with older workers
99The left hand chart shows the average age of an injured worker by accident year, for the three major Construction SICs (15 Construction of Buildings; 16, Heavy and Civil Engineering Construction; and 17 Specialty Trades Contractors) .As one can see, the average age has risen from 36-38 years old in 2005, to 39-41 in 2011; with some improvement in 2012. The right hand chart shows the average cost per claim by age group and accident year. To make the comparisons easier , these have been indexed to the average cost for 35-44 year old injured workers for each of the 3 SICs . One can immediately see the dramatic correlation between age of worker and cost per claim, with older workers (55-64 years old) costing 40% more on average than 35-44 year old workers. There are many reasons behind this, including higher average wages for older workers, increased healing and recovery times associated with aging, and co-morbities. But when combined with the prior exhibit, these show one of the drivers of increased severity for Construction is the higher average age of injured workers.910
OBESE WORKFORCE Obesity is rising in U.S.11Obesity & Workers Compensation Duke Study
Claims Per 100 FTEs
Lost Work Days per 100 FTEsTruls stbye, MD, PhD; John M. Dement, PhD & Katrina M. Krause, MA (2007). Obesity and Workers' Compensation Results From the Duke Health and Safety Surveillance System, Arch Intern Med.167:766-773. The average medical claim costs per 100 employees were $51,019 for the obese and $7,503 for the non-obese.
11AGING AND OBESE WORKFORCEEmployee selection, orientation & training
A shortage of qualified workers will only increase this riskA 2013 AGC study suggests that there is a quickly developing workforce shortage issue* Macro construction economy is expanding, estimated at 5% for the next 5 yearsContractors are facing staffing shortages as the work force agesMany construction workers permanently left the industry during the recession, forcing contractors to bring on inexperienced laborBy 2017, there will be two million fewer workers than positions available: How are you going to get the best possible workforce?
* AGC News Worker Shortage in Construction Industry, January 2, 2013121212Key Issue #3What do you think are the two most important predictors of the outcome of a WC claim? Who matters the most in the process?1314What are Most Important Factors of a WC Claim:THE CLAIMThe Worker-attitude-job satisfaction-integrityThe Doctor-RTW mentality-Focus on workerClaim RepDefenseCounselSupervisorEmployerNurseUnionYourbrokerHR2 Most Important FactorsHow to get best EmployeesBackground CheckDrug TestFinancial Background CheckIntegrity TestingSkills/Personality/Academic TestingPhysical Capabilities TestingTrainingConditioningOrientationSupervisors15Zurich study indicates that 25% of workforce has been on the job less than 2 years Those same workers generate 43% of WC losses2 Most Important FactorsHow to get best Doctors16TraditionalPreferred Provider NetworksNurse Case ManagersAdjuster FeedbackAdvancementsEarly InterventionOutcomes Based Network
Connecting with the Injured Worker
First Fill text17Real time 17
Two Most Important Factors Reduce Lag Time: Claim Intake App
18Clean Interface (April Release)18Two Most Important FactorsHow to get the best Doctors19Beware of physician dispensed medsBeware of unnecessary ER VisitsOver prescription of physical therapyMeet with your doctor/clinic when appropriateInvite physicians to job site when possible
19Key Issue #4If you arent keeping score, youre practicing.- Vince Lombardi
20Keeping ScorePitfalls of MetricsSkip MetricsSkip to MetricsFail to align with your strategyFail to consider impactToo many metricsNot understood by users21
Keeping ScorePrimary and Secondary Metrics
PrimaryDirect measurement ($)Clear correlationNormalized, developedExamplesClosed LT Claim at 24 monthsDeveloped cost per $100/payrollAccident Frequency Rate22SecondaryIndirect measurementExamplesLag Time 24 hour contactClaim Closure RatePPO penetration rate% of Savings from Carrier/TPAKeeping ScoreMetrics for youExperience Modification FactorAFR: Accident Frequency RateCost of Closed Lost Time claim at 12, 24 monthsCost of Closed Medical Only claim at 12, 24 monthsAverage LTWD by year/per EEDeveloped Losses per 100 FTEs per $100 payroll.
23Key Issue #5You need to manage the medical, especially prescription drugs.
2425Pharmacy IssuesTrends with opioidsNational epidemicGrowing concern in work compOriginally end stage cancer drugsActiq lollipops= $3042% get opioids in year 1, 16% are still on opioids in year 2.16,000 deaths per year from opioid usage, WA had 33 deaths in one recent yearClaim is 4X as likely to have a total cost over $100,000In California, 3 % of the states doctors prescribe 55% of the opioids
Pharmacy IssuesA Growing Concern in Work CompSource: WCRI data from Oct. 1, 2008 Sept. 30, 2009 claims, with fills thru March