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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
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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
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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)!
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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
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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.
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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.
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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
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Driving Economic FactorsDriving Economic Factors
National Macro Economic Drivers Inflation Economic Growth Technology
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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
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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
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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
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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
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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
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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
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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.
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Important Trend IssuesImportant Trend Issues
New ASC and OP Hospital Facilities Influenza Outbreaks Benefit Changes
National Working days
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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
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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
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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
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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
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CDC – Morbidity and MortalityCDC – Morbidity and Mortality
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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%
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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
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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
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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
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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
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Illustrative Impact of Cost Shifting and Illustrative Impact of Cost Shifting and Payments Based on Billed ChargesPayments Based on Billed Charges
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Price, Utilization, and Cost forWorkers Compensation Medical
Services
John Robertson, FCAS, MAAAJune 18, 2007Orlando, FL
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$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%
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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
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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
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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.
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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.
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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
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© 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%
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.