Workers’ Compensation Reform Impacts on Loss Development Patterns

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Workers’ Compensation Workers’ Compensation Reform Impacts on Loss Reform Impacts on Loss Development PatternsDevelopment Patterns

Casualty Loss Reserve Seminar, September 2007Casualty Loss Reserve Seminar, September 2007

Michelle Sheng, FCAS, MAAAMichelle Sheng, FCAS, MAAAWCIRB of CaliforniaWCIRB of California

22© WCIRB California. All Rights Reserved.

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AgendaAgenda Recent California WC ReformsRecent California WC Reforms Areas of ImpactAreas of Impact

- overall cost level: by provisionoverall cost level: by provision

- - payment patternspayment patterns

- size of loss distributionsize of loss distribution Impact of Frequency Distribution Impact of Frequency Distribution

ChangesChanges Caveats/PrecautionsCaveats/Precautions


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AgendaAgenda Recent California WC ReformsRecent California WC Reforms


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Recent California WC ReformsRecent California WC Reforms

Assembly Bill No. 749 HighlightsAssembly Bill No. 749 Highlights

- Changes to maximum and minimum - Changes to maximum and minimum weekly indemnity benefits over 4 yearsweekly indemnity benefits over 4 years

- Annual cost of living adjustments on - Annual cost of living adjustments on Permanent Total & life pension benefitsPermanent Total & life pension benefits

- Repealed primary treating physician - Repealed primary treating physician presumption (under certain presumption (under certain circumstances)circumstances)


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Assembly Bill No. 227/Senate Bill No. 228 Assembly Bill No. 227/Senate Bill No. 228 HighlightsHighlights- Replacement of vocational rehabilitation - Replacement of vocational rehabilitation benefits with nontransferable education benefits with nontransferable education vouchersvouchers- Changes to physician, hospital, surgical - Changes to physician, hospital, surgical facility and pharmaceutical fee schedulesfacility and pharmaceutical fee schedules- Adoption of ACOEM medical treatment - Adoption of ACOEM medical treatment guidelinesguidelines- Limitation of number of chiropractic and - Limitation of number of chiropractic and physical therapy visitsphysical therapy visits


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Senate Bill No. 899Senate Bill No. 899- Two-year cap on temporary disability - Two-year cap on temporary disability paymentspayments- Apportionment of permanent disability - Apportionment of permanent disability benefitsbenefits

- Change in scheduled # of weeks of PD- Change in scheduled # of weeks of PD- Multi-tiered PD benefits- Multi-tiered PD benefits- PD Rating Schedule- PD Rating Schedule- Establishment of medical provider - Establishment of medical provider networks and independent medical reviewsnetworks and independent medical reviews


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- - overall cost level: by provisionoverall cost level: by provision


- - size of loss distributionsize of loss distribution


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Historical Payment PatternsHistorical Payment Patterns

Basis of WCIRB’s Loss Development Basis of WCIRB’s Loss Development ProjectionsProjections

Lengthening of Payment Patterns in Lengthening of Payment Patterns in Late 1990s (particularly medical)Late 1990s (particularly medical)


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Impact of Reforms on Loss Impact of Reforms on Loss DevelopmentDevelopment

History No Longer Representative of FutureHistory No Longer Representative of Future Different Impact on Indemnity versus MedicalDifferent Impact on Indemnity versus Medical Reforms Expected to Reduce Payment Reforms Expected to Reduce Payment

DurationDuration

- Medical treatment reforms- Medical treatment reforms

- VR benefits eliminated (late-paying) - VR benefits eliminated (late-paying)

- PPD durations reduced- PPD durations reduced Many Reforms Impact Pre-existing ClaimsMany Reforms Impact Pre-existing Claims


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IndemnityIndemnity Impact Varies by Accident YearImpact Varies by Accident Year Apply Duration and/or Compensation Apply Duration and/or Compensation

Change to Payment Pattern by Type Change to Payment Pattern by Type of Benefit (death, permanent total, of Benefit (death, permanent total, permanent partial, temporary, life permanent partial, temporary, life pension, vocational rehabilitation)pension, vocational rehabilitation)

Retroactive Impact of PDRSRetroactive Impact of PDRS


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Impact to CA Indemnity Payment Impact to CA Indemnity Payment Patterns by Accident YearPatterns by Accident Year

8%

29%

9%

31%

13%

43%41%

13%

0%

10%

20%

30%

40%

50%

As of 12 months As of 24 months

pre-reform

AY2004

AY2005

AY2006


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Comparison of Indemnity Payment Comparison of Indemnity Payment PatternsPatterns

40%

14%

31%

10%

29%

8%

41%

13%

0%

20%

40%

60%

As of 12 months As of 24 months

Countrywide*

AY1996 (Pre-Minniear)

AY2003 (pre-reform)

AY2006 (after adjustment)


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MedicalMedical Many Reform Impacts by Year of Payment, Many Reform Impacts by Year of Payment,

Regardless of Year of AccidentRegardless of Year of Accident Adjust Pre-SB 228 Fee Schedule Losses to Adjust Pre-SB 228 Fee Schedule Losses to

SB 228 Fee Schedule Level to Create SB 228 Fee Schedule Level to Create Consistent Development Triangle Consistent Development Triangle

Impact of ACOEM Guidelines and Medical Impact of ACOEM Guidelines and Medical Provider Networks on Utilization of Provider Networks on Utilization of Medical Services for AY2004 and PriorMedical Services for AY2004 and Prior

Assume Basic Payment Pattern Otherwise Assume Basic Payment Pattern Otherwise UnaffectedUnaffected


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Comparison of Paid Medical 12-to-Comparison of Paid Medical 12-to-24 Month Development Factor24 Month Development Factor

2.183

2.342

2.666

2.887

2.590

2.288

2.255

2.755

2.930

2.367

2.00

2.25

2.50

2.75

3.00

3.25

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Accident Year

Pre-Reform Actual

Post-Reform Actual

Post-Reform Fee ScheduleAdjusted

Post-Reform Fee Schedule andMedical Utilization Adjusted


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Comparison of Paid Medical 84-to-Comparison of Paid Medical 84-to-96 Month Development Factor96 Month Development Factor

1.035

1.0481.049

1.020 1.020

1.0441.047

1.052

1.0581.052

1.00

1.05

1.10

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Accident Year

Pre-Reform Actual

Post-Reform Actual

Post-Reform Fee ScheduleAdjusted


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Comparison of Medical Payment Comparison of Medical Payment PatternsPatterns

66%

54%

27%

64%

55%

29%

9%

26%

40%43%

32%

14%

0%

20%

40%

60%

80%

As of 12 months As of 24 months As of 36 months

Pre-Minniear AY1996@12/31/96Countrywide

AY2003 (Pre-Reform)

AY2006 (Adjusted)


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Changes on IndemnityChanges on Indemnity


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Impact of Frequency Distribution Impact of Frequency Distribution Changes on IndemnityChanges on Indemnity

Post-reform Indemnity Development Post-reform Indemnity Development Emerging Better than ProjectedEmerging Better than Projected

Hypothesis A: Overall Cost Level Hypothesis A: Overall Cost Level Estimates Partly Understated (annual Estimates Partly Understated (annual WCIRB Cost Monitoring Report)WCIRB Cost Monitoring Report)

Hypothesis B: Change in Claims Mix Hypothesis B: Change in Claims Mix (Distribution of Claims among Injury (Distribution of Claims among Injury Types)Types)


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Distribution of Indemnity ClaimsDistribution of Indemnity Claims

12%4%

32%

31%

65%56%

0%

20%

40%

60%

80%

100%

AY2002 AY2005

Major Minor Temporary


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WCIRB Loss Development StudyWCIRB Loss Development Study Annual Report since 2005Annual Report since 2005 Overall Impact by Provision Based on Law Overall Impact by Provision Based on Law

Evaluation Model simulating reform Evaluation Model simulating reform provisions using actual data, outside provisions using actual data, outside expertise, etc.expertise, etc.

Payment Patterns Adjusted Based on Payment Patterns Adjusted Based on Applying Provision Impact to Historical USR Applying Provision Impact to Historical USR and Call Dataand Call Data

Indemnity and Medical Payment Patterns Indemnity and Medical Payment Patterns Adopted in WCIRB Pure Premium Rate FilingsAdopted in WCIRB Pure Premium Rate Filings

Available on www.wcirbonline.orgAvailable on www.wcirbonline.org


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ChangesChanges Caveats/PrecautionsCaveats/Precautions


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Caveats/PrecautionsCaveats/Precautions Unmeasurable ProvisionsUnmeasurable Provisions Provisions Not RealizedProvisions Not Realized Unanticipated Court Decisions and AppealsUnanticipated Court Decisions and Appeals

- Apportionment provision: % or $?- Apportionment provision: % or $?

- Pendergrass: 1- Pendergrass: 1stst TD payment or 1 TD payment or 1stst med- med-legal report?legal report?

Great Uncertainty on Implementation, Great Uncertainty on Implementation, Regulation and Judicial InterpretationsRegulation and Judicial Interpretations


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Workers’ Compensation Reform Workers’ Compensation Reform Impacts on Loss Development Impacts on Loss Development

PatternsPatterns

Questions?Questions?

Workers’ Compensation Reform Impacts on Loss Development Patterns

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