The outlook for Florida’s workers’ compensation market continues to be strong as a competitive market offers affordable rates, although costs could be reduced further if the state addressed prescription drug costs and hospital expenses, according to a recent report issued by state regulators.
The Florida Office of Insurance Regulation recently submitted its 2012 Workers’ Compensation Annual Report to state lawmakers in preparation for the 2013 legislative session, which is set to convene March 1.
The annual report is the ninth since state lawmakers in 2003 enacted a set of reforms that saw rates cut by a cumulative 64.7 percent as of 2010. Since then, state regulators have approved three consecutive rate increases including a 7.8 percent rate hike in 2011 and an 8.9 percent increase in 2012. A 6.1 percent increase took effect on January 1.
After ranking as either the first or second state with the highest rates by an Oregon Department of Insurance report prior to 2003, Florida dropped to 40th in 2010. Currently, the state ranks 29th, which is still below the national median rate.
In 2011, 250 private insurers provided coverage in Florida with total premiums of over $1.7 billion. Ten insurers accounted for more than 40 percent of the total market share led by Bridgefield Employers Insurance Co., which represents 11.4 percent of the market and more than $203 million in direct written premiums.
Rounding out the top five insurers are FCCI Insurance Co. with $109 million in direct written premiums, Zenith Insurance Co. with $94 million in premiums, Twin City Fire Insurance Co. with $70 million in premiums and RetailFirst Insurance Co. with $59 million in premiums.
When compared to five other major markets, Florida is the fourth largest state behind California, New York, Illinois, Pennsylvania and Texas. However, among these Florida ranks last in direct written premiums and along with Illinois is the only state whose largest provider of insurance is a private company and not a state fund.
Florida also ranks last in terms of its direct loss ratio at 41.29 percent and direct loss plus defense cost ratio of 48.63 percent. By comparison, California posted a direct loss ratio of 60.86 percent and direct loss plus defense cost ratio of 71.79 percent.
While the overall market conditions continue to be positive, the report notes that legislative action to rein-in some medical expenses could result is a substantial rate reduction.
Back in October when he was signing off on a 6.1 percent rate increase that took effect January 1, Insurance Commissioner Kevin McCarty said it was time for lawmakers to take their first hard look at the workers’ compensation law since the 2003 reforms.
“The prospect of a third possible rate increase should be used as an opportunity to refocus our attention on the Florida Legislature,” said McCarty. “Although we not expect the cost savings of the magnitude of 2003, I believe we can make progress addressing some of the cost drivers we are all aware of.”
Specifically, the report cited the cost of physician-dispensed drugs and the methodology for calculating reimbursements for hospital inpatient, hospital outpatient and ambulatory surgical center services.
Since 2010, regulators and lawmakers have focused on physician-dispensed repackaged drug costs, the reimbursements for which are unregulated under state law. By comparison, pharmacy reimbursements are capped at three times a drug manufacturer’s wholesale price, plus a $4.18 dispensing fee. If a similar price control were to be put in place for physician-dispensed drugs, NCCI estimated it could reduce rates by 1.1 percent or $27.3 million.
Florida also utilizes a charge-based system when calculating hospital outpatient and ambulatory surgical center services. The services are currently billed at 75 percent of “usual and customary charges” for non-scheduled surgeries and 60 percent for scheduled surgeries. However, “usual and customary charges” is not defined under state law.
NCCI estimated that if Florida followed the lead of other states and based reimbursements on a percentage of Medicare it would bring greater certainty to pricing and result in costs savings. For example, setting the outpatient services at 140 percent of Medicare would result in a savings of 4.5 percent.
Florida also sets hospital inpatient reimbursements on a per diem rate schedule. NCCI estimated that if inpatient costs were reimbursed at 140 percent of Medicare, this would reduce rates by an additional three percent.
All told, the three changes could result in savings of 8.6 percent or more depending on the percentage of Medicare lawmakers choose for reimbursement calculations.