Zero In On Workers’ Compensation Cost Drivers and Trends Presented by: Chris Desmarais, Sales Manager Hunter Wells, Account Executive April 16, 2015

Zero In On Workers’ Compensation Cost Drivers and Trends

Presented by: Chris Desmarais, Sales Manager Hunter Wells, Account Executive

April 16, 2015

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Today’s Agenda

• Learnings from workers’ compensation industry studies

• Survey Trends: What risk managers had to say

• Solutions for workers’ compensation costs for public entities

• Questions and discussion

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PRIMA Survey Overview

• Survey demographic--public entities:

‒ PRIMA members--government members only

‒ Nationwide response

• Independent market researcher--confidentiality

• 25% response rate--above industry norms

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Introduction

Why Did We Do This?

Workers’ compensation environment is changing and becoming increasingly complex.

New approaches and solutions are needed.

Then Now

• Indemnity/medical split, 60%/40%

• Pharmacy

‒ Small part of medical

• Metric for medical savings was PPN penetration

• Complexity of fee schedules/billing was limited

• Aging workforce was not an issue

• Traditional insurance

• Segment approach to controlling costs

• Medical is 60% of claims costs

• Pharmacy

‒ 19% of medical spending

‒ Narcotics about 30% of Rx spend

‒ Physician dispensing

• Claims

‒ Age, obesity, co-morbidies driving higher costs

‒ Economic pressure on return-to-work

‒ Aged claims are very expensive

• More alternatives

• Holistic approach needed to reduce TCOR

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Consider the True Cost of Workers’ Compensation

True Cost of Workers’

Compensation

Indemnity

Medical

Nurses

Excess

TPA

RMIS

MoraleTime to Investigate

Property Damage

Replace

IW

Pharmacy

Voc Rehab

Legal

Workers’ Compensation Issues, Concerns, & Challenges as outlined

by PRIMA’s Risk Managers

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Biggest Workers’ Compensation Concerns

Please Indicate Your Two Biggest Workers’ Compensation Concerns

Other

Access to credible risk mgt info

Medical costs (write-in)

Ability to benchmark results

Increasing WC regulations

Resistance to safety culture

Severity of exposures and risk potential

Co-morbidity issues impacting claims

Returning employees to work

Controlling claims frequency

The aging workforce

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

11%

2%

5%

10%

14%

14%

17%

22%

31%

31%

42%

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Recent Cost Trends

The Changes in Workers’ Compensation Costs for the Respondents in the 3 years Prior to the Survey

In-creased

38%

Remained about the same34%

De-creased

27%

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Reasons for Workers’ Compensation Cost Increases

Select The Top Four

Other

Inadequate safety programs

Insufficient RTW programs

Increased regulations

Workers compensation reform

Co-morbidity impacting claims

Cost of premiums and/or TPA

General economic conditions

Increased claims frequency

Aging workforce

Increased pharmacy costs

Increased medical provider costs

0% 10% 20% 30% 40% 50% 60% 70% 80%

22%

5%

15%

16%

18%

25%

28%

35%

35%

47%

53%

76%

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Two Most Significant Factors Risk Managers Anticipate

Healthcare reform

Increased regulations

Budgetary concerns

Co-morbidity affecting claims

Liberal definitions of WC injuries

Aging workforce

Medical costs

0% 10% 20% 30% 40% 50% 60% 70%

13%

14%

18%

21%

30%

37%

65%

Will Impact Workers’ Compensation Costs ‒ Next Three Years

Solutions for Controlling Workers’ Compensation Costs

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Sampling of Public Entities Data

Predicting the Future

What to expect from a database of 20,000 claims

• Gender: Male 54%, female 46%

• Accident causes--top three

‒ Strains: 32%

‒ Falls/slips: 29%

‒ Struck by: 13%

• Age at accident

‒ 15-24: 4%

‒ 25-34: 16%

‒ 35-49: 40%

‒ 50+: 40%

• Most expensive claims by age group: 50+

• Top three parts of body frequency: Knee, lower back, and shoulder

• Top three most expensive claims by body part: back/disc, internal organs, heart

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Workers’ Compensation Cost Reduction Strategies

Are Attempting or Will Attempt ‒ Select The Four Most Important

Other

Employee incentive programs

Change vendors (insurance/TPA)

Fraud prevention

Nurse case management

Pre-screening of employees

Claims settlements

Mgr accountability/charge-backs

Wellness programs

Return to work programs

Improved safety programs

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

8%

10%

11%

15%

27%

29%

30%

47%

56%

72%

78%

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Risk Managers Can Use a Holistic Approach

To Reducing Their Total Cost of Risk

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Loss Prevention: Strategic Approach

• Evaluate your loss prevention program annually

• Understand from where your losses are coming

• Understand what’s driving costs

Establish specific, measurable, and achievable goals for loss prevention!

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Loss Prevention

Additional Strategies

• Execute good employee recruiting, hiring practices, and onboarding

• Enhance employee engagement

‒ Education and job recognition programs promote job satisfaction

• Demonstrate leadership commitment

‒ Observe, recognize, and demonstrate safe work practices

• Establish a “culture of safety”

‒ Factor safety in all business decisions

• Offer wellness programs

‒ Help your aging workforce stay well

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Public Entity Risk Management Success

Lori Gray, Risk Management Division Chief, Prince William County, Virginia, named

2013 Business Insurance’s “Risk Manager of the Year”, joining an elite group of risk

managers, including past winners from Microsoft, Verizon, Coca-Cola, Boeing, and

Johnson & Johnson

http://virginiahomesgroup.com/local-communities/prince-william-county/

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Prince William County’s Holistic Approach

Five Major Areas of Focus

• Improved communication, processes and safety culture

• Enhanced data collection for business decisions

• Invested in the safety program

• Opened an employee health clinic--focusing on wellness/fitness, injuries, etc.

• Conducted strong return-to-work program

Results

• In-network usage of 86% (FY 2012) versus 71% statewide average

• 32% reduction of billed medical charges from July 1, 2011 through June 30, 2012

• 71% of claims reported in three days; overall average five days

Workers’ Compensation Strategies

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Aging Workforce

Impact on Workers’ Compensation

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Aging Workforce

Key Points

• Awareness: Aging workforce is a developing issue in our society

• Medical and indemnity severity are the lead issues, not frequency

• Motor vehicle accidents are the leading cause of occupational fatalities over 55

• Workplace safety management will benefit entire workforce

• Incorporate multi-disciplinary management approach

• Capitalize on the collective strengths of your most experienced employees

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Aging Workforce

Multi-disciplinary Risk Management Approach

• Examples of methods to help prevent claims involving older workers:

‒ Helping older workers stay healthy

» Exercise, eye examinations, physical accommodations, safety features

‒ Weight limits

‒ Avoid climbing

‒ Implement slip-and-fall prevention program

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Addressing Medical and Pharmacy Costs

Managed Care Strategies

Medical Cost

Adjuster Edits- Relatedness- Reasonable- Necessary- Litigation

Fee/UCR Applications- Additional review- Rules interpretation- Code review

Nurse Clinical Evaluation- Direct negotiations- Larger med bill- Appropriateness- Home health

PPO Networks

Specialty Networks- PT- Diagnostics- DME

PBM- Generic- Home delivery- Formulary blocked performance- Physician outreach- Narcotics utilization review

Bill Review Process- Adjuster- RN- Certified coders

Out of Network Pharm Nurse- Focuses on narcotic spend trends- Drug testing- Morphine equivalent therapy

Intervention Nurse- Free assessment for LT- Serious medical-only claims

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Return-to-Work Programs

Strategies for Public Entities

• Paying attention to injured workers in a timely, consistent, and caring way

• Facilitating return-to-work as soon as medically appropriate is critical in managing

claim costs

• Implement an effective modified duty program

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Setting-up a Modified Duty Program

Guidelines

• Develop a formal written policy with time limits--obtain management and union buy-in

• Train and educate the supervisors on why return-to-work is important, expectations

concerning use and how it saves money

• Inventory potential modified duty jobs

‒ Consider developing “job banks”

‒ Each supervisor/manager recommends three jobs in their department

• Educate medical providers on:

‒ Availability of modified jobs

‒ Need for physical capacity information

‒ Return-to-work philosophy

• Track and manage employees on modified duty

• Consider central budgeting of modified duty expense

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Return-to-Work

Supervisors and Managers

• Additional insights on gaining supervisor/manager buy-in:

‒ Introduce return-to-work as a policy

‒ Hold supervisors/managers accountable for losses and compliance

‒ Communicate compliance and savings achieved

‒ Include in performance evaluations

‒ Develop specific roles, particularly who will manage the return-to-work

policy

‒ Avoid “no one in charge of returning employee”--engage human resources

‒ Establish policies that encourage return-to-work

‒ Semi-annual meeting with stakeholders

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Integrating Wellness Programs and Risk Management


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Integrating Wellness program and Risk Management


Occupational health and safety vs. wellness programs:

Occupational Health & Safety Wellness Programs

Goal

Risk management program that strives to foster a safer work environment. Focuses on preventing workplace-related injuries and illnesses.

Focuses on enhancing the overall well-being of workers, addressing specific lifestyle behaviors, inside and outside of the workplace.

Typical Elements

• Incident investigation training• Safety planning• Rules and workplace procedures

• Nutrition education• Smoking cessation program• Stress management program• Access to fitness centers• Exercise program• Information on health topics

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Benchmarking

• Key question: who is your audience?

‒ You

‒ Safety Director

‒ Claims Manager

‒ Risk Manager

‒ Excess carrier

‒ Other public entity senior management

‒ The public

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Benchmarking

15 Measures of Your Workers’ Compensation Success

• 3-5 year payments

• Closure rates vs. database

• Average cost—closed claims

• Medical savings

• Costs of workers’

compensation/employee

• Breakdown of lost-time/medical-only

claims

• Loss run

• Average lost-time days

• Percentage claims closed within 90

days

• Number of injuries in first 90 days of

job

• Frequency ratio vs. database

• Prompt reporting/repeater report

• Percentage of claims by severity

• Frequency/severity by locations

• Age of injured workers

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Chargebacks


Percent holding department managers accountable for workers’ compensation costs

Yes36%

No64%

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Chargebacks


• Develop a system that is easy to understand and administer

‒ Complex systems do not provide clear incentives for performance

‒ Information should be easily verifiable

• Develop a system not subject to manipulation

‒ Suppressing claim reporting

‒ Suppressing reporting of claim information to lower projected costs

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Chargebacks


1. Establish goals for your allocation system

2. Assess your organization’s willingness and financial ability to budget and allocate costs at

the operating unit level

3. Define the risk management costs to be allocated

4. Determine whether prospective or retrospective allocation approach works best

5. Define allocation methods

‒ Exposure base

‒ Experience base

‒ Allocation limits

‒ Experience period

‒ Valuation dates

6. Partner with others: Agents, consultants, actuary, accounting, financial, senior management,

information systems, etc.

7. Perform trial calculations

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Action You Can Take

• Review this survey with your Sr. Management Team (education is a powerful tool)

• Study your trends--are they similar to what we saw today (aging workforce,

frequency, increasing medical and pharmacy costs)?

• Complete a Risk Management Assessment (RMA)

• Set 3-5 goals

• Measure results

• Benchmark

• Evaluate

• Publish results and action steps for improvement

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Questions & DiscussionThank you

Documents

Zero In On Workers’ Compensation Cost Drivers and Trends Presented by: Chris Desmarais, Sales Manager Hunter Wells, Account Executive April 16, 2015