Insurers, and especially self-insurers, are seeing positive trends as a result of the workers’ compensation reforms in California, experts on the subject told attendees at the recent Casualty Actuarial Society (CAS) Spring Meeting.
Roberta Garland, president, Garland Actuarial LLC, and moderator of the panel session, explained that early results of the reform’s impact indicate that more insurers are entering the market and charged rates are lower. The average insurer rate as a percentage of payroll has dropped from a high of 6.4 percent in the second half of 2003 to 5.3 percent in the second half of 2004. The rate is projected to drop further to 4.8 percent in the first half of 2005, according to data provided by the state’s Workers Compensation Insurance Rating Bureau.
“Insurer rates are declining and further rate decreases are expected,” Garland explained.
The reforms are reportedly having an even greater impact for self-insurers than insurance companies. “The 2004 results for self-insured clients are off the charts,” Garland said.
According to the Garland Composite Index of Self Insured Clients, accident year 2004 saw a 26 percent decrease in the average reported claim, versus a 14 percent increase in 2003. Average paid claims decreased by almost 20 percent and the number of claims per adjusted payroll decreased by 14 percent compared to the prior year.
Despite the potential “clouds on the horizon,” including some California legislators stating that reforms went too far in reducing benefits, “leading indicators look favorable,” Garland noted.
Katrina Zitnik, director, workers’ comp, for Costco Wholesale, provided the attendees with the perspective of a self-insurer. With a third of its employees in California, two-thirds of its workers’ comp costs in California, and 2,100 claims per year, the reform legislation “is a big issue for the company,” stated Zitnik.
Zitnik reviewed the main elements of the reform legislation, noting that “the ACOEM (American College of Occupational and Environmental Medicine) Guidelines are an excellent trend for workers’ comp and are the most important part of the reform.” The guidelines allow “nurses to negotiate treatment plans with doctors that make sense.”
“Workers’ compensation costs affected the bottom line of Costco and changed the way I managed,” Zitnik said. The reforms and a new approach, including more attention to actuarial issues to eliminate surprises, resulted in Costco’s loss rate dropping from 7.1 percent in fiscal year 2004 to 5.6 percent during the first part of fiscal year 2005.
Joanne Ottone, consulting actuary for Towers Perrin, described what actuaries expect to see in the data as the reforms take effect, and how actuaries may adjust loss data to measure the reforms’ actual impact.
“We are likely to see and have already seen lower medical costs due to new medical fee schedules and utilization guidelines,” Ottone stated.
Measuring the impact is difficult because the data actuaries are seeing now is a mixture of pre- and post-reform data. Restating the data as if the reforms had been in effect since the beginning of an accident period helps to avoid distortions. Adding the adjusted reserve estimates to unadjusted paid and reported claims provides a mixture of pre- and post-reform results.
“Actuaries need to take into account the impact of reforms in their work,” Ottone added.
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