comparison of cost drivers in group health and workers compensation insurance cas spring 2007...

Comparison of Cost Drivers in Comparison of Cost Drivers in Group Health and Workers Group Health and Workers Compensation InsuranceCompensation Insurance

CAS Spring 2007 MeetingCAS Spring 2007 Meeting

Orlando, FL Orlando, FL

June 18, 2007June 18, 2007

2

Comparison of Cost Drivers in Group Comparison of Cost Drivers in Group Health and Workers Compensation Health and Workers Compensation

InsuranceInsurance

Panelists

John Cookson, F.S.A., Milliman Inc., Wayne, PA John Robertson, F.C.A.S., M.A.A.A., NCCI Inc.,

Boca Raton, FL

Moderator Bill Miller, F.C.A.S., M.A.A.A., Philadelphia, PA

3

Background on CHCI and Why This Background on CHCI and Why This Panel Was FormedPanel Was Formed

CHCI is the Committee on Health Care Initiatives Committee, chaired by Teresa, is fostering

research with FSA and other groups on healthcare in various lines of insurance.

Was formed in response to CAS members’ response to survey last year.

Look for additional topics on Medical Malpractice and other healthcare related areas.

WE NEED YOU(r feedback and participation)!

4

2005 Comparison of Medical Insurance Systems

% of Total

29.16%

11.10%

4.26%

1.84%

41.83%

7.79%

4.02%

Medicare

Medicaid

Other government (Veterans,NIH, Indian)

Worker’s compensation

Private insurance

Patient (out-of-pocket)

All other patient care sources,not elsew here classif ied

5

GH

A:36%

E:25%

D:15% C:

10%

B:14%

A: Office Visits

B: Physical Therapy

C: Radiology

D: Prescription Drugs

E: Surgery and OtherServices

WC

E:18%

D:9%

C:17%

B:22%

A:34%

Where Does the Dollar Go?Distributions of Medical CostsFirst three months following injury

Source: "Workers Compensation vs. Group Health: A Comparison of Utilization," NCCI, 2006© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

6

C:18%

A:23%

B:23%

E:5%

D: 0%

A: Office Visits

B: Physical Therapy

C: Radiology

D: Prescription Drugs

E: Surgery and OtherServices

Office Visits and Physical Therapy Stand OutContributions to Cost Difference by Service CategoryFirst three months following injury, GH=100%

WC costs 71% more than GH

across the 12 injuries

Source: "Workers Compensation vs. Group Health: A Comparison of Utilization," NCCI, 2006© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

Factors Driving Costs in Factors Driving Costs in Group Health InsuranceGroup Health Insurance

John Cookson, F.S.A., Milliman Inc., Wayne, PA

CAS Spring 2007 MeetingCAS Spring 2007 MeetingOrlando, FL Orlando, FL

June 18, 2007June 18, 2007

8

Driving Economic FactorsDriving Economic Factors

National Macro Economic Drivers Inflation Economic Growth Technology

9

An Economic ViewAn Economic View

Momentum is important Inflation adjusts wages Wealth effect increases demand with a lag Aging relatively constant

in population Interventions

DRG RBRVS Managed Care Effect early 1990s Back lash in late 1990s

Cost Shift

10

Health Cost Index vs. CPI-W All Items Health Cost Index vs. CPI-W All Items Less Energy vs. Unlagged Personal Less Energy vs. Unlagged Personal

IncomeIncome

-5%

0%

5%

10%

15%

20%

Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

$0 Deductible HCI CPI-W All Items Less Energy Unlagged Personal Income

Health Cost Index represents a $0 deductible plan

11

Health Cost Index vs. CPI-W All Items Health Cost Index vs. CPI-W All Items Less Energy (Lagged 1 Year) Less Energy (Lagged 1 Year) vs. Unlagged Personal Incomevs. Unlagged Personal Income

-5%

0%

5%

10%

15%

20%

Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

$0 Deductible HCI CPI-W All Items Less Energy (Lagged 1 Year) Unlagged Personal Income

Health Cost Index represents a $0 deductible plan

12

CPI-W All Items Less Energy (Lagged 1 Year) CPI-W All Items Less Energy (Lagged 1 Year) vs. Health Cost Index vs. Personal Income vs. Health Cost Index vs. Personal Income

(3 yr average, lagged 18 months) vs. (3 yr average, lagged 18 months) vs. Hospital Costshift (2 Year Smoothed)Hospital Costshift (2 Year Smoothed)

-5%

0%

5%

10%

15%

20%

Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

$0 Deductible HCI CPI-W All Items Less Energy (Lagged 1 Year)

Personal Income (3 yr average, lagged 18 months) Hospital Costshift (2 Year Smoothed)

Health Cost Index represents a $0 deductible plan

13

CPI-W All Items Less Energy (Lagged 1 CPI-W All Items Less Energy (Lagged 1 Year) plus Personal Income (3 yr average, Year) plus Personal Income (3 yr average, lagged 18 Months) plus Adjusted Hospital lagged 18 Months) plus Adjusted Hospital

Costshift Costshift vs. Health Cost Indexvs. Health Cost Index

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Jan-78 Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

$0 Deductible HCI

CPI-W All Items Less Energy (Lagged 1 Year) plus Personal Income (3 Year Avg, Lagged 18Months) Plus Adjusted Hospital Costshift

Health Cost Index represents a $0 deductible plan

14

Micro FactorsMicro Factors

High Concentration of Resources and Especially Specialist Physician

Higher Spending More use of high-cost, non-evidence based care Quality no better and possible poorer

Implication Growth in Physicians/Capita increasing trends Growth in Specialist/Physician increases trends

15

Important Trend IssuesImportant Trend Issues

Local Differences Affect Local Trends Physicians Specialist Hospital Beds Health Employment and Wage Rates Hospital Beds

Replacement Specialty Hospital

New Technology MRIs, PETs, etc.

16

Important Trend IssuesImportant Trend Issues

New ASC and OP Hospital Facilities Influenza Outbreaks Benefit Changes

National Working days

17

Workers Compensation vs. Workers Compensation vs. Full MedicalFull Medical

Mix of Services Mix of Diagnoses Mix of Providers Provider Contracting Medical Management Business Cycle Effects Potential for Prevention

18

Health Cost Index vs. Large Employer Health Cost Index vs. Large Employer Annual TrendAnnual Trend

-5%

0%

5%

10%

15%

20%

Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05

$250 Deductible HCI Large Employer

Health Cost Index represents a $250 deductible plan with $1,000 OOP

19

Health Cost Index vs. Large Health Cost Index vs. Large Employer Two Year SmoothingEmployer Two Year Smoothing

0%

2%

4%

6%

8%

10%

12%

14%

16%

Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05

$250 Deductible HCI Large Employer

Health Cost Index represents a $250 deductible plan with $1,000 OOP

20

Health Cost Index vs. Large Employer Health Cost Index vs. Large Employer Five Year SmoothingFive Year Smoothing

0%

2%

4%

6%

8%

10%

12%

14%

Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05

$250 Deductible HCI Large Employer

Health Cost Index represents a $250 deductible plan with $1,000 OOP

21

CDC – Morbidity and MortalityCDC – Morbidity and Mortality

22

Suggestions for Improving Forecasts Suggestions for Improving Forecasts Working Day (my non-RX estimate)Working Day (my non-RX estimate)

Period Ending 3 Month Trend 12 Month Trend

December-04 1.6% 0.9%

December-05 -0.6% -0.5%

December-06 -0.6% -0.1%

23

Government Healthcare Data Government Healthcare Data PhysicianPhysician

0.0%

2.5%

5.0%

7.5%

10.0%

1999 2000 2001 2002 2003 2004 2005

Total per Capita Total less Medicare per Capita

24

0.0%

2.5%

5.0%

7.5%

10.0%

1999 2000 2001 2002 2003 2004 2005

Total per Capita

Total less Medicare per Capita

Total less Medicare, Medicaid, Other Gov and Uninsured per Capita

Government Healthcare Data Government Healthcare Data PhysicianPhysician

25

0.0%

2.5%

5.0%

7.5%

10.0%

1999 2000 2001 2002 2003 2004 2005

Total per Capita Total less Medicare per Capita

Government Healthcare Data HospitalGovernment Healthcare Data Hospital

26

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

1999 2000 2001 2002 2003 2004 2005

Total per Capita

Total less Medicare per Capita

Total less Medicare, Medicaid, Other Gov and Uninsured per Capita

Government Healthcare Data HospitalGovernment Healthcare Data Hospital

27

Illustrative Impact of Cost Shifting and Illustrative Impact of Cost Shifting and Payments Based on Billed ChargesPayments Based on Billed Charges

Price, Utilization, and Cost forWorkers Compensation Medical

Services

John Robertson, FCAS, MAAAJune 18, 2007Orlando, FL

29

$8.3

$8.4

$8.2

$8.9

$9.4

$10.1

$11.1

$12.0

$13.3

$14.4

$16.4

$17.6

$19.2

$22.9

$20.5

$24.6

+7.5%

+11.7%

+6.8%+9.0%

+7.4%+14.0%

+8.2%+10.6%

+8.3%+10.1%

+7.4%+5.1%+9.0%

-2.1%1.3%+6.8%

5

10

15

20

25

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006p

MedicalClaim Cost (000s)

2006p: Preliminary based on data valued as of 12/31/20061991–2005: Based on data through 12/31/2005, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

WC Medical Claim Cost Trends—Growth Continues in 2006

Lost-Time Claims

Accident Year

Annual Change 1991–1996: +4.1%Annual Change 1997–2005: +9.5%

30

4.53.5

2.8 3.2 3.54.1

4.6 4.74.0

5.1

7.4

10.1

8.3

10.6

8.2

14.0

7.4

9.0

6.8

4.04.24.4

7.5

11.7

0

2

4

6

8

10

12

14

16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006p

Change in Medical CPI Change in Medical Cost per Lost-Time Claim

WC Medical Severity Still Growing Much Faster Than the Medical CPI

Lost-Time ClaimsPercent Change

Medical severity 2006p: Preliminary based on data valued as of 12/31/2006Medical severity 1995–2005: Based on data through 12/31/2005, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

Year

31

55% 45%

1986

MedicalIndemnity

1996

48% 52%

Indemnity Medical

2006p

41% 59%

Indemnity Medical

2006p: Preliminary based on data valued as of 12/31/20061986, 1996: Based on data through 12/31/2005, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

Workers Compensation Medical LossesAre More Than Half of Total Losses

All Claims—NCCI States

32

WC Medical Costs

We will look at: Changes in prices and utilization

for medical services over time Prices and utilization in WC

compared to Group Health (GH)

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

33

Cost Difference Is Sum of Price and Utilization Components

Cost = Price × Utilization

Cost Difference = Price Component + Utilization

Component

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

34

0%

20%

40%

60%

80%

100%

1996 1997 1998 1999 2000 2001 2002

High

Mid

Low

The Share of Diagnoses with “Low” Medical Severity Has Declined While the Share of “Mid” and “High” Has

Increased All Lost-Time Claims at 24 Months After Date of Injury

Injuries by diagnosis were classified as high, mid, and low based on paid medical severity in accident year 1998. © Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

Accident Year

35

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

Changes in Utilization Explain More than Half of the Increase in Paid

Medical Severity

Paid Medical Severities on Lost-Time Claims ClosedWithin 24 Months of Date of Injury

Increasein Severity,

AccidentYears

2001/02 vs.

1996/97

Percent of Severity Increase,

Accident Years 2001/02

vs.1996/97

Unadjusted Medical Severities on Lost-Time Claims 73% 100%

Increase Due to Diagnosis Mix Differences 15% 21%

Increase Due to Number of Treatments 38% 52%

Remaining Increase Due to Price and Other Factors 20% 27%

36

Workers compensation (WC) medical costs per claim grew 7% to 14% per year over the last several years

WC uses fee schedules to control costs in most states

Use of treatment guidelines in WC is growing

But medical costs in WC can be high due to overutilization

How do WC medical costs and utilization compare to Group Health (GH)?

Medical Costs in Workers Compensation

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

37

WC and GH Prices for Medical Services

Prices paid for medical services in WC and GH are generally comparable

In states with fee schedules, WC paid prices similar to GH

In states without fee schedules, WC paid higher prices than GH

Networks have the biggest impact on prices in states without fee schedules

Excludes hospitalsMedical services provided 1997 to 2001States reviewed: FL, GA, IL, KY, TN© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

38

WC and GH Costs for Medical Services

WC costs more than GH to treat similar injuries, mostly because of differences in utilization

WC has more intense and costly treatments earlier on than does GH

Cost differences are smaller than average for acute injuries and trauma-related conditions like fractures or sprains

Cost differences are greater for chronic and complex injuries

Includes hospitalsMedical services provided 1997 to 2001States reviewed: FL, GA, IL, KY, TN

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

39

WC and GH Utilization of Medical Services

Study looks directly at utilization for 12 injuries

Hospital charges are not included in utilization comparisons (due to data availability issues)

Comparisons reflect services provided within three months of injury

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

40

Key Findings on Utilization

WC pays more than GH for medical services in the first three months following injury, largely due to utilization

Cost differences among injuries are largely due to utilization differences

Cost differences among states are largely due to price differences

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

41

Utilization Is the Largest Driver of Cost Differences Between WC and GH

First three months following injury, GH = 100%

171% 157%

114%

0

50

100

150

200

Price Utilization Cost

Percent

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

42

Cost Differences Vary by StateWorkers Compensation Versus Group Health

First three months following injury, GH = 100%

FL KY SC GA AZ AL CT KS IL OK IN MD CO TN0

50

100

150

200

250

State

Percent

Low Cost

Medium CostHigh Cost

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

43

Price Differences and Cost DifferencesBetween WC and GH Correlate by State

First three months following injury, GH = 100%

75%

136%

111%107%

160% 167%162% 162%

224%

0

50

100

150

200

250

Price Utilization Cost

Low Cost Medium Cost High Cost

Percent

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

44

First three months following injury, GH = 100%

109%

136% 145%120%

184%204%

0

50

100

150

200

250

Price Utilization Cost

Acute and Trauma Chronic and Complex

Percent

Cost Difference Is Bigger for Chronic and Complex Injuries Due to Utilization

Workers Compensation Versus Group Health

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

45

WC Pays More Than GH for Many Services Due to Utilization

Office visits are a significant contributor to cost difference despite lower average price in WC

Office visits are the predominant contributor to the cost difference for acute and trauma-related injuries

Physical therapy contributes to cost difference due to utilization

Physical therapy is the biggest driver of the cost difference for chronic and complex injuries

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

46

Price and Utilization Impacts Vary by Service

Workers Compensation Versus Group Health

First three months following injury, GH = 100%

81% 103%

191%

130% 123%

186%

266%

185%

73% 98%

167%

269% 276%

103%121%

0

100

200

300

OfficeVisits

PhysicalTherapy

Radiology Prescrip-tion Drugs

Surgeryand OtherServices

Price Utilization Cost

Percent

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

47

Utilization of Office Visits and Physical Therapy Is Higher in WC

First three months following injury, GH = 100%

79% 83%98% 105%

176%204%

349%

239%

156%

187%

347%

244%

Physical TherapyOffice Visits

0

100

200

300

Acute &Trauma

Chronic &Complex

Acute &Trauma

Chronic &Complex

Price Utilization Cost

Percent

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

48

Radiology Has Higher Pricesand Utilization in WC

First three months following injury, GH = 100%

146%

107%

190%192%

144%

65%

227%

156% 191%

72%

318%

248%

Radiology Surgery & Other Svcs

0

100

200

300

400

Acute &Trauma

Chronic &Complex

Acute &Trauma

Chronic &Complex

Price Utilization Cost

Percent

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

49

Medical Costs Are Higher in WC Than GH Because of Utilization

Differences in costs of treating injuries correlate with differences in utilization

Differences in costs across states correlate with differences in prices

Utilization of office visits and physical therapy is the biggest driver of cost differences

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.

50

Conclusion

WC costs more than GH to treat similar injuries, largely due to greater utilization of medical services in WC

Greater network penetration reduces costs

RVS schedules with lower markups relative to Medicare work the best

Fee schedules reduce WC medical costs

© Copyright 2007 National Council on Compensation Insurance, Inc. All Rights Reserved.