Alabama regulators are preparing to hold a public hearing on a proposed statewide average 9.3 percent decrease in the state’s workers’ compensation rates.
The National Council on Compensation Insurance submitted the filing earlier this year, which calls for the sixth consecutive rate decrease. If approved as filed, the state’s loss cost rates will have dropped by 44.8 percent since 2007.
The Alabama Department of Insurance has scheduled a Nov. 17 public hearing on the filing. The new rates will apply to all new and renewal policies as of Jan. 1, 2012.
If approved as filed, manufacturing classes would decrease by an overall 5.4 percent, contracting classes by 12 percent, and office and clerical classes 8.6 percent. Goods and services classes would decline by 9.5 percent and miscellaneous classes by 10.6 percent.
Alabama’s worker’s compensation system has been stable over the last several years. However, although this year’s filing calls for a decrease, NCCI reports there are signs of some deterioration in the market.
The state’s average combined loss ratio in 2010 rose to 104 percent after staying in the mid-nineties from 2006 to 2009. Most of that increase is due to the state’s medical cost per claim, which is the highest of its five neighboring states including Florida, Georgia, Mississippi and Tennessee.
In 2009, the average medical cost per claim on a loss time claim rose by 14.9 percent, for a total of $43,200. In that same period, nationally the medical cost per loss time claim only increased by 5.4 percent, equaling roughly $27,000.
On the indemnity side of the equation, the state’s costs have largely been flat. In 2009, the indemnity cost per claim increased by 5.3 percent after falling by 5.8 percent in the previous year. Alabama is paying roughly $18,000 per indemnity claim, ranking it the third lowest of its five neighboring states.
Economic Trends
Similar to many other states, Alabama’s economic climate has faced a severe downturn following the recession that began in 2007. With the state’s unemployment rate hovering around 10 percent, the state’s premium volume has dropped precipitously.
In 2007, Alabama’s direct written premium volume reached some $422 million. Four years later, that figured dropped by nearly 25 percent to $318 million.
Alabama has seen steep declines in employment in the construction industry and informational services. However, that has been partially offset by smaller gains in the mining industry and professional and business services.
Those trends are contributing in part to a leveling off in claims frequency. After more than a decade of declines in claim frequency, NCCI is projecting that nationally the claim frequency rate will increase by 3 percent in 2010.
Prescription Drugs
One trend that is having an impact on Alabama’s workers’ compensation system is the growing prevalence in doctor-dispensed and re-packaged prescription drugs. The practice has become a growing concern around the country as more and more physicians have moved to prescribe and provide drugs to injured workers out of their own office.
A recent NCCI national study found that the percentage of physician-dispensed drugs has increased from 9 percent in 2003 to 23 percent in 2009. From 2006 to 2009 alone, the percentage of physicians dispensing drugs across the country more than doubled.
In Alabama, this has translated into both higher drug costs and greater utilization. For example, in 2007, pharmacy cost per medical equaled $255 while physician-dispensed drugs accounted for $36 per medical claim. Just two years later, while pharmacy costs per claim increased by a mere $11, physicians’ pharmacy cost per medical claims had nearly tripled.
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