Health Insurance


I.I.I. chief actuary James Lynch brings us a grim story on drug abuse and how it affects insurers:

This week Contingencies magazine published my article tracing how America’s latest drug epidemic has affected workers compensation insurance.

The epidemic comes from 20 years of gradually increasing use (and abuse) of opioids, a special class of prescription drugs that mimic many of the effects of heroin. Some you may have heard of, like Vicodin or OxyContin. Prescribed legally but highly addictive, they have become the most commonly abused class of drugs in America.

More people die from drug overdoses in America than from car accidents, and opioids lead the tragic parade. In 2010, for example, 16,652 people died from opioid overdoses, more than from heroin and cocaine combined. Opioids toll has tripled since the late 1990s.

My article shows how the growing epidemic played out in workers comp. Narcotics make up 25 percent of workers comp drug costs, and more than 45 percent of narcotics dollars pay for drugs containing oxycodone, according to the National Council on Compensation Insurance.

Insurers have acted as the crisis emerged, and now they as well as federal, state and local officials may be making headway against the problem.

Last week, after my article went to press, AIG’s new chief executive, Peter Hancock, noted his company had teamed with Johns Hopkins University to study opioid abuse among the company’s 23 million workers compensation claims.

“It is a terrible cost to the industry, a terrible cost to employers, and it’s a terrible cost to society,” Hancock told The Wall Street Journal. AIG has medical professionals working with doctors to find ways to alleviate pain without turning to opioids.

The most recent federal action reclassifies any drug containing the opioid hydrocodone as a Schedule II drug, meaning its prescriptions are more tightly controlled than before.

Unfortunately, these actions may be too late to prevent many opioid addicts from switching to heroin. Opioids tantalize the same brain receptors as heroin, and there are signs that addicts deprived of their Oxys switch.

American businesses lose an average of 2.8 million work days each year due to unplanned absences, costing employers more than $74 billion, so it’s with interest that we read of a significant increase in absence due to obesity and skin cancer in a just released study by Cigna.

According to Cigna’s analysis of 20 years of short-term disability claims, claims related to obesity increased by 3,300 percent between 1993 and 2012.

In 1993, obesity ranked 173 out of 267 diagnostic drivers of absence, accounting for 0.04 percent of claims that year. By 2012, obesity had jumped 133 places to number 40 on the list, accounting for 0.70 percent of claims.

Hat tip to Business Insurance which reports on this story here.

Cigna also reports that new claims and absence related to skin cancer increased more than 300 percent in the 20-year period.

Between 1993 and 2012, skin cancer jumped from 91 to 27 on the list of diagnostic drivers of absence, and its share of claims had increased to 0.9 percent in 2012, up from 0.2 percent in 1993.

The analysis also shows a 45 percent increase in work absence due to the surgical treatment of herniated discs, the most significant increase in short-term disability claims among sedentary occupations over the 1993 to 2012 period.

Cigna notes that the most frequently approved short-term disability claims both 20 years ago and today, remain musculoskeletal disorders, which make up 25 percent of all non-maternity absence.

In a press release, Dr Robert Anfield, chief medical officer for Cigna’s disability insurance unit says:

The aging workforce and a trend towards growing waistlines has made some medical conditions more dominant factors for short-term disabilities than they were 20 years ago. For example, arthritis and tendonitis-related absences have both increased more than 50 percent since 1993.”

However, the study found significant changes in short-term disability rates for obesity, cancer, depression and herniated discs that uncover the impact of medical advances on absence and productivity.

Check out I.I.I. facts and statistics on disability.

Check out an I.I.I. study on obesity, liability and insurance here.

I.I.I. chief actuary James Lynch reports from Day 2 of the WCRI annual conference in Boston:

Health insurance and workers compensation are sort of kissin’ cousins, in that changes that affect one inevitably affect the other.

But that’s my metaphor. Dr. Richard Victor, executive director of the Workers Compensation Research Institute (WCRI), likens the impact of health care reform to a hurricane.

Like a storm whose path is not quite defined, health care reform could take a significant toll – but we don’t know precisely where. Since workers comp differs from state to state, the impact of the Affordable Care Act (ACA) will differ from state to state. Like a good weatherman, Dr. Victor told an audience of about 400 at WCRI’s annual conference in Boston on Thursday he could make some educated guesses what might happen.

He is assuming the ACA is enacted exactly as written – a tough assumption but as good a starting point as any. In that case, the increase in insured Americans will increase demand.

The marketplace might decrease the use of doctors, relying instead on well-trained nurses or even sophisticated computers to help provide care.

Or doctors might raise prices in the face of rising demand.

What actually happens will differ by state. Some states make it difficult to take diagnosis and treatment out of the doctors’ hands. In those states, medical costs – and their kissin’ cousin, comp costs — are likely to rise. Elsewhere, the effect will be muted.

Other insights:

● Health care reform will result in a healthier work population. This will tend to help the comp system, because healthy workers are less likely to get hurt on the job, and if they do get hurt, they get well faster.

● Changes in billing, Dr. Victor said, will “absolutely” lead to upcoding – in which a doctor exaggerates the severity of a treatment to receive a bigger reimbursement. The practice is well-documented in workers comp, he said, citing examples from Florida and California.

● Changes are likely to shift into workers compensation. That’s because many employers are increasing deductibles that employees pay for treatment. Workers comp, meanwhile, has no deductibles and no co-pays – giving an employee the incentive to label an injury as work-related.

I blogged about Day 1 of the conference here. Other highlights from Day 2:

● Alex Swedlow, president of the California Workers Compensation Institute (CWCI) noted that even after all appeals are exhausted only about five percent of denials of comp claims are overturned. Swedlow also said evidence-based pain management guidelines effectively control costs; and a comparison of California and Washington pharmaceutical costs show that more cost savings are possible.

● Harry Shuford, chief economist of the National Council on Compensation Insurance (NCCI), argued that underwriting cycles are closely linked to bond yields and that when it comes to managing their business, insurers in the long run “do a much better job than other financial intermediaries” like banks.

Workers compensation insurance will have to move quickly to keep from being a net loser from health care reform, said Dr. Jonathan Gruber, one of the architects of what ultimately became the template for the Affordable Care Act (ACA).

Dr. Gruber, an MIT economist who helped construct the Massachusetts health reform that the ACA modeled, spoke to more than 400 attendees at the Workers Compensation Research Institute (WCRI) conference in Boston.

Health care reform should help the workers compensation system, he said. Fewer workers will be uninsured, so fewer people will get injured over the weekend and then claim on Monday they got hurt at work.

But Dr. Gruber, an MIT economist, noted that the comp system is incredibly inefficient. It pays higher rates for services than most health plans. And it changes slowly, which could be a big disadvantage as the ACA forces efficiency on the other parts of the health care system – hospitals, doctors and health insurers. If the comp system can’t keep up, the rest of the system will find ways to dump costs on it.

Dr. Gruber said it will be three years before we can tell whether ACA has been successful. At this point – in ACA’s early days, its proponents and opponents are “saying too much.”

Gruber also gave a nod to researchers like those at WCRI. With ACA’s many moving parts, he said, it will be important to intelligently determine which of those parts are truly working.

Day One of the WCRI conference also featured two examinations of how changes in state comp laws play out.

The first showed how Texas successfully reduced the rate of claims through changes enacted in 2002, 2003 and 2005. The changes brought individual claims under greater scrutiny.

The good news: the rate of claims in Texas lagged those of 15 states studied, said WCRI senior analyst Carol Telles. The rate of claims from chiropractors fell more sharply than other professional services, though Texans continue to use chiropractors more than the other states.

Costs per claim, though, increased, in part because the changes aren’t free. It costs money to review claims. Any changes to a workers comp system must consider whether savings will be able to justify those costs.

The second study showed how Illinois took a more blunt approach in 2006. It cut fee schedules 30 percent across the board. One interesting result, said senior public policy analyst Rebecca Yang: costs per claim fell, as you might expect, but only by 24 percent overall.

Among the reasons: the rate of claims increased, and there were signs that doctors were billing for more complex office visits than before.

Day Two of the conference will take a longer look at the impact of ACA on workers comp. Other sessions will look at how the economy drives workers comp results; accountable care organizations; and medical dispute resolution.

The Insurance Research Council (IRC) has taken a closer look at the potential effects of the Affordable Care Act (ACA) for property/casualty insurers.

Its analysis – which doesn’t make any specific estimates of the potential cost implications for the P/C industry – identifies the possible ways in which P/C insurance claim costs will be affected by the Act.

The upshot is that the IRC believes the most significant impact will be cost shifting by hospitals and other providers from public and private health insurers to p/c insurers.

According to the report:

Cost shifting will occur in response to increased cost containment efforts by public and private health insurers, and will appear in the form of higher charges and a higher volume of billed services.”

And:

Cost shifting will be particularly severe in state jurisdictions and with coverages where the differences between public and private health insurance reimbursement levels and property-casualty reimbursement levels are greatest.”

The potential magnitude of the cost-shifting is likely to be major, the IRC notes.

To mitigate this potential impact, the IRC suggests that P/C insurers should consider options to ensure that the prices paid as reimbursement for medical services are consistent with prices paid by public and private health insurers.

While market-based fee schedules and bill review authority are among the tools often applied to address medical pricing issues, the IRC says P/C insurers should also consider alternatives to ensure that only medically necessary and appropriate treatment is provided to P/C insurance claimants and reimbursed by insurers.

Utilization review authority, evidence-based treatment guidelines, and the authority to deny reimbursement for unnecessary or inappropriate treatment are among the tools that P/C insurers should consider, the IRC suggests.

PC360 reports on the IRC analysis here.

The Affordable Care Act (ACA) will have both potential positive and negative effects on the property/casualty insurance industry, according to a recently published paper by Travelers.

In the paper, Travelers notes that medical trends impact workers compensation, general liability, and auto insurance costs, which make up about 5 percent of health care revenue.

Key ACA components expected to affect the P/C industry are:

– Extended healthcare coverage – a 15 percent increase in demand for a fixed supply of healthcare services

– Black lung presumptions – any miner (or surviving spouse) with 15 or more years of underground coal mine employment and a totally disabling respiratory or pulmonary impairment is presumed to be disabled due to pneumoconiosis and eligible for Black Lung benefits.

– Pharmacy and durable medical equipment (DME) taxes and assessments – the potential to increase costs 1.5 percent and 2.3 percent, respectively.

– Medical data – enhanced electronic record-keeping and sharing of data among providers.

Some of the potential positive effects of the ACA on P/C insurers include increased wellness – a healthier and better conditioned population – and a decreased incentive to file questionable P/C claims, Travelers says.

However, on the negative side, the ACA could result in decreased access to care, increasing indemnity costs as prompt access to physicians is reduced and return to work is delayed, the paper notes.

Travelers also cautions that there could be increased cost shifting from Medicare to P/C payers by physicians and hospitals due to declining Medicare reimbursement rates.

Hat tip to Claims Journal for its report on P/C insurer impacts of the ACA here.