Hawaii. September 20,

Transcription

1 Hawaii September 20,

2 Hawaii Workers Compensation State Advisory Forum WC System Overview Shaping Workers Compensation Examining the Workers Compensation Process Guest Speaker: Director Linda Chu Takayama, DLIR State of the Industry Cost Drivers Frequency and Severity Research Brief: Prescription Drugs and WC Federal Legislative Issues Item Filings in Hawaii 2

3 Workers Compensation System Overview

4 NCCI Market Outlook 2012: Conflicted 2013: Encouraging 2014: Balanced 2015: Calm Now but Turbulence Ahead 4

5 NCCI Market Outlook 2016: Transforming Bill Donnell NCCI President and CEO 5

6 State of the Workers Compensation Market Combined ratios: Underwriting gains achieved on both calendar year and accident year bases Net written premium volume increased for the fifth consecutive year Lost-time claim frequency again decreased Lost-time claim severity changes were small increasing for indemnity and decreasing for medical Residual market premium remains manageable 6

7 Hawaii Workers Compensation System An Overview Increasing premium volume Improving combined ratios Frequency flattened in recent years Flat indemnity; increasing medical average costs 7

8 Workers Compensation in Hawaii 8

9 Shaping WC Legislation, Regulation, and Judicial Activity

10 2016 Hawaii WC-Related Legislation HB 2017 allows physicians to submit treatment plans by fax or and requires employers to accept plans electronically (Act 101) HB 2363 allows the Department of Labor and Industrial Relations to receive WC claim reports electronically and increases penalty amounts for such things as failure to provide WC insurance coverage (Act 187) HB 2715 requires that a closed claim study of the WC system be completed by 11/30/17, with the results to be provided to the legislature prior to the convening of the 2018 session (Act 188) 10

11 Hot Topics Exclusive Remedy Gig Economy Drug Formularies Attorney Fees 11

12 Top Five Workers Compensation-Related Legislation Topics in 2016 First Responder Presumption Employer/Employee Definition Medical Cost Management Independent Contractors and Misclassification Exclusive Remedy 12

13 2016 Hawaii WC-Related Judicial Decisions Panoke v. Reef Development of Hawaii, Inc. Denial of benefits based on deficiencies in a physician s certifications of disability Pulawa v. Oahu Construction Co. Application of the reasonably needed for the employee s greatest possible medical rehabilitation standard Gao v. State of Hawaii Whether notice to improve performance from employer constituted a disciplinary action 13

14 Key Judicial Decisions in 2016 Castellanos v. Next Door Company The Florida Supreme Court declared that the mandatory attorney fee schedule in workers compensation cases is a violation of due process and is therefore unconstitutional. Westphal v. City of St. Petersburg The Florida Supreme Court concluded that the 104-week limitation on temporary total disability benefits results in a statutory gap in benefits and is therefore unconstitutional. The decision restores the 260-week limitation that preceded the 1994 amendments to the statutes. Maxwell v. Sprint PCS The Oklahoma Supreme Court declared as unconstitutional a provision of the state s workers compensation act that defers benefits for injured employees who return to work. 14

15 2016 Law-Only Loss Cost Filings Alaska (approved) 3.7% Impact of medical fee schedule changes Florida (pending) +19.6% Impact of state supreme court rulings in the cases of Castellanos and Westphal combined with recently enacted medical reimbursement changes (SB 1402) Oklahoma (approved) +3.4 Impact of state supreme court ruling in Maxwell Tennessee (approved) 2.7% Impact of Drug Formulary and Medical Treatment Guidelines 15

16 Key Takeaways on Legislation in 2016 Legislative activity for 2016 is about average for an election year No significant workers compensation measures have progressed Opt-out proposals in South Carolina and Tennessee failed The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states WC systems ranged from 3.7% to +19.6% New terminology has emerged regarding the gig economy and independent contractors: Qualified Marketplace Contractor 16

17 Guest Speaker: Linda Chu Takayama Director, Hawaii Department of Labor and Industrial Relations

18 Nationwide Economic Outlook

19 National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment is expected to continue to grow slowly Wage growth is poised to accelerate Medical inflation is trending up In December 2015, the Federal Reserve began raising the federal funds rate Potential Impact on the Workers Compensation Market Premium increases from higher payroll and higher expected claim frequency for new workers Upward pressure on payroll and premium as well as indemnity severity Increased pressure on medical costs per claim Higher interest rates mean better returns on invested funds 19

20 Percent 4 Medical Inflation Is Forecast to Accelerate This Year and Next US Medical Consumer Price Index Growth Rate f 2017f f Forecast Medical Care Consumer Price Index, Urban Consumers Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody s Analytics 20

21 Current Economic Headlines National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Oil and natural gas prices are low. Economic weakness in Europe and China should keep the dollar strong. Housing starts are increasing. Potential Impact on the Workers Compensation Market Low energy prices benefit most producers a positive for workers compensation because manufacturing accounts for 16% of premiums. However, layoffs in the energy sector negatively impact energy-dependent states. A strong dollar may cut employment in exportcentric industries, particularly equipment manufacturing and technology. This is a negative due to the large share of premiums in manufacturing. New residential construction should boost demand for construction workers a positive because construction accounts for 24% of premiums. 21

22 The Dollar Is Forecast to Continue to Rise This Year, Reducing Exports US Dollar Index (January 1997 = 100) 130 Net Exports of Goods and Services, $ Billions US Dollar Index Net Exports of Goods & Services f 2017f f Forecast Weighted average exchange value of the US dollar: Broad Index nominal; Net Exports of Goods and Services: billions of 2009 US dollars Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: Federal Reserve Board, US Bureau of Economic Analysis, and Moody s Analytics

23 How Does the Hawaii Economy Compare?

24 Change in Private Employment Private Employment Growth Is Now Above Average Percent 3 May 2014 May 2015 May Hawaii United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending each May Source: US Bureau of Labor Statistics (BLS), 24

25 Change in Employment by Industry Employment in Most Industries Has Increased in the Past 12 Months Construction and Mining/Natural Resources Education and Health Services Information Industrial Sector Leisure and Hospitality Other Services Financial Activities Manufacturing Government Trade, Transportation, and Utilities Professional and Business Services 12-Month Percent Change, May 2016 Sector Size % Share 12-Month Change HI , ,700 US +1.2 HI , ,500 US +3.0 HI , US 0.1 HI , ,200 US +2.5 HI , US +1.0 HI , US +2.0 HI , US 0.3 HI , US +0.5 HI , US +1.6 HI , US +2.7 Percentage change for the latest 12 months as of May 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), 25

26 Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Percent Hawaii United States Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 (preliminary) Source: US Bureau of Labor Statistics (BLS), 26

27 Headline Unemployment Rate The Unemployment Rate Is Below the National Average Percent May 2014 May 2015 May Hawaii United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016 Source: US Bureau of Labor Statistics (BLS), 27

28 Hawaii s Economic Highlights Hawaii s unemployment rate is below the US rate Employment growth is now above the US rate: Construction and Mining/Natural Resources is the top-performing sector in the state, adding the most jobs and posting the largest percentage increase with growth well above the national pace Education and Health Services and Leisure and Hospitality are other top-performing sectors, but with growth rates closer to the national average Trade, Transportation, and Utilities and Professional and Business Services have declined Hawaii wage growth is above the US average 28

29 State of the Industry

30 $ Billions Countrywide Workers Compensation Net Written Premium Growth Continued State Funds ($B) Private Carriers ($B) Private Carriers and State Funds p Calendar Year p Preliminary Source: NAIC s Annual Statement data Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year 30

31 United States Employment Levels Index: 2010 = 100 Index of Payroll Index of Construction Employment Index of Real GDP Index of Employment Index of Manufacturing Employment Sources: US Bureau of Labor Statistics and US Bureau of Economic Analysis 31

32 Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 Cumulative Change of 20.1% ( p) p Calendar Year p Preliminary Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, relative to those previously approved in NCCI states only IN and NC are filed in cooperation with state rating bureaus 32

33 Hawaii s Workers Compensation Premium Volume Direct Written Premium in $ Millions $356 $326 $239 $190 $178 $195 $201 $217 $243 $ Calendar Year Source: NAIC s Annual Statement data 33

34 Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers p Calendar Year Accident Year p Preliminary Source: NCCI s analysis based on NAIC s Annual Statement data Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders 34

35 Results Vary From State to State Accident Year 2014 Combined Ratios WV OK TX AR KS DC IL SD NH NV IN MT NM IA MS NE AZ FL NC VT CT TN ID UT LA MO VA AL SC GA HI CO RI AK KY MD ME OR Data is evaluated as of 12/31/

36 Hawaii Accident Year Combined Ratios 114% 105% 104% 107% 94% Sources: NCCI s financial data and NAIC s Annual Statement data Accident Year 36

37 Hawaii Policy Year Combined Ratios 109% 113% 108% 106% 105% 92% 97% 84% 66% 70% Policy Year Sources: NCCI s financial data and NAIC s Annual Statement data 37

38 2015/2016 Filing Cycle NCCI Voluntary Market Filing Activity Data for 38 states was reviewed 27 states filed a decrease 10 states filed a change of 0% or greater 1 state did not submit a filing Range of voluntary filings: 14.8% to +3.4% Based on data evaluated as of 12/31/

39 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Percent Excludes Law-Only Filings WV IL AZ TN AL NM NC OK MD TX NH KS MS RI OR AK NV VA KY FL IA AR CT DC MO MT LA UT CO SD NE ME ID HI IN SC VT GA Approved Pending Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons 39

40 Hawaii s Filing Activity Approved Loss Cost Changes 6.2% 5.2% 2.0% 1.4% 1.3% 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017* *Pending approval 40

41 Hawaii January 1, 2017 Loss Cost Filing Overall Loss Cost Level Change +1.3% Changes due to: Experience +0.2% Trend 0.0% Benefits +0.9% LAE +0.2% Experience Period 0.8% Indemnity 0.0% Indemnity (SAWW) +1.8% Loss Development +1.0% Medical 0.0% Medical (Schedule) 0.0% 41

42 Hawaii January 1, 2017 Filing Average Changes by Industry Group Manufacturing +0.2% Contracting 1.3% Office and Clerical 0.9% Goods and Services +3.2% Miscellaneous +0.6% Overall +1.3% 42

43 Indexed Historical Loss Cost Level Hawaii s Historical Loss Cost Index Base Year = Effective Year 43

44 Average Voluntary Pure Loss Cost Quartiles Using Hawaii s Payroll Distribution WA CA OR NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MS MI OH IN KY TN GA AL OK WV NC SC PA VA NY NH VT DE MD DC ME RI CT NJ MA $ $1.12 $ $1.36 $ $1.54 TX LA $ $2.28 AK FL Not included HI Countrywide = $1.28 Hawaii = $1.23 Based on the latest NCCI approved rates and loss costs in the various states 44

45 Workers Compensation Premium Rate Ranking Premium Rate Index per $100 of Payroll HI ranking 25th lowest (out of 51) ND IN AR MA VA NV UT DC WV OR CO KY KS MS AZ TX MD MI OH GA WY NE AL FL HI NC SD IA WI TN MO NM RI MN WA SC PA ID ME NH MT LA DE VT IL OK AK NY NJ CT CA Source: 2014 Oregon Workers Compensation Premium Rate Ranking Summary 45

46 Hawaii Total Policy Size Comparison Policy Count, and Premium Policy Year 2014 Policy Count by Bracket 4% 6% 7% $0 $2,499 $2,500 $4,999 Premium by Bracket 4% 4% 6% 11% $5,000 $9,999 8% $10,000 $19,999 14% 58% $20,000 $49,999 $50,000 and Greater 65% 13% 46

47 Hawaii s Current Distribution of Payroll and Premium by Industry Group Standard Premium (% of total) 5% 22% 10% 46% 17% Payroll (% of total) 3% 10% 44% 35% 8% Claim Counts (% of total) 4% 10% 8% 62% 16% 0% 20% 40% 60% 80% 100% Manufacturing Contracting Office and Clerical Goods and Services Miscellaneous Based on the latest NCCI approved rates/loss costs in Hawaii 47

48 Workers Compensation Cost Drivers

49 Loss Ratio Hawaii s Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 49

50 Claim Frequency

51 Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Cumulative Change of 51.5% ( ) p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level, excludes highdeductible policies; : based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in

52 Frequency Index Countrywide Lost-Time Claim Frequency by Size of Total Loss K (40% of LT claims) 10K Over (60% of LT claims) p Accident Year p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to size of loss categories, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 52

53 Frequency Countrywide Lost-Time Claim Frequency by Part-of-Body Groupings for Claims Over $50,000 Accident Year p Cumulative changes ( ): +14% +21% -22% -5% -15% -19% -18% -28% -4% +5% +5% -17% +1% +1% p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to the >$50K size-of-loss category, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 53

54 Hawaii Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Percent Change 3% -1% -1% 0% -1% -5% -5% -4% -7% -7% -12% -10% -9% -8% Cumulative Change of 50.1% ( ) Policy Year Based on data through 12/31/2015, developed to ultimate 54

55 Frequency per Million of On-Leveled Premium Hawaii Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 55

56 Hawaii s Average Claim Frequency Frequency per 100,000 Workers Total 5,307 Total 5,340 Total 4,214 Total 4,598 Total 3,380 Total 3,636 4,121 4,254 3,072 1,884 3,021 3,269 1, ,186 1,086 1,526 HI AZ CO ID NV OR Lost Time Medical Only Based on NCCI s Statistical Plan data 56

57 Hawaii s Distribution of Claim Counts by Injury Type Hawaii 55.7% 33.3% 10.9% 0.1% Region Countrywide Countrywide 75.3% 15.2% 9.4% 0.1% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 57

58 Key Takeaways Claim Frequency Frequency continues to decline Claim frequency can be a key cost driver Higher lost time, lower med-only frequency compared to other states 58

59 Indemnity Benefits Constitute the Majority of Total Benefit Costs in Hawaii Hawaii Indemnity 52% Medical 48% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Based on NCCI s financial data 59

60 Indemnity Severity

61 Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Severity ($ Thousands) 25 Private Carriers and State Funds +9.3% +0.6% +2.9% +1.5% +1.0% -2.2% +0.9% -0.1% $ % +9.0% +5.9% +7.7% $10.4 $11.2 $12.2 $ % $ % +9.2% +3.1% +4.6% +3.1% +1.0% $16.2 $16.7 $17.5 $17.6 $ p 15p $ % $20.5 $22.4 $22.6 $22.1 $22.2 $22.2 $22.9 $23.2 $23.5 Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate; excludes high-deductible policies; : based on data through 12/31/2014 For all states where NCCI provides ratemaking services, excluding WV 61

62 Countrywide Relative Growth Rates Indemnity Severity vs. Wage Inflation Private Carriers and State Funds NCCI States Cumulative Change in Indemnity Claim Severity Cumulative Change in US Average Weekly Wage (AWW) 1995 to to to 2015p Severity Growth > US AWW Growth Severity Growth > US AWW Growth US AWW Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 62

63 Hawaii s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +7.5% ( ) 16.4% -8.6% 6.6% -0.8% -3.3% -0.2% 1.7% 5.1% -3.6% -4.5% -6.9% -4.7% 1.4% 12.0% $17.6 $16.7 $16.5 $16.5 $17.1 $17.2 $16.2 $17.7 $15.2 $13.6 $13.4 $14.0 $15.1 $15.8 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 63

64 Cost per Case ($ '000s) Hawaii vs. Countrywide Average Indemnity Claim Severity p 2015p Accident Year Hawaii Countrywide p Preliminary based on data valued as of 12/31/2015 Source: NCCI s financial data 64

65 Indemnity Average Claim Severity ($ '000s) Hawaii s Average Indemnity Severity AY Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 65

66 Hawaii Hawaii s Indemnity Loss Distribution by Injury Type 50.5% 48.6% 0.9% Countrywide 31.4% 59.0% 9.6% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Fatal & Permanent Total Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 66

67 Key Takeaways Indemnity Benefit Costs Average indemnity cost is fairly stable in Hawaii Higher share of indemnity costs than countrywide Average indemnity cost is lower than countrywide 67

68 Medical Severity

69 Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Severity ($ Thousands) Private Carriers and State Funds $ % $ % +7.3% +8.3% +10.1% $10.8 $11.6 $12.9 $ % +3.0% +4.5% +0.4% % -1.0% +7.0% +5.9% +7.8% +5.8% +7.7% +5.4% +8.8% +13.5% $15.7 $17.1 $18.4 $19.4 $ p 15p $22.1 Accident Year $23.4 $25.0 $26.2 $26.3 $26.8 $27.3 $28.0 $28.8 $28.5 p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 69

70 Countrywide Relative Growth Rates Medical Severity vs. Medical Care Inflation Private Carriers and State Funds NCCI States Cumulative Change in Lost-Time Medical Claim Severity Cumulative Change in US Medical Consumer Price Index (CPI) 1995 to to to2015p Severity Growth > US MCPI Growth Severity Growth > US MCPI Growth US MCPI Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate; excludes high-deductible policies; : based on data through 12/31/2014 US Medical Consumer Price Index (CPI): US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 70

71 Hawaii s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands $8.7 $9.5 Cumulative Change of +71.4% ( ) 12.1% 9.0% -11.0% 6.6% -3.4% 4.0% $8.4 $9.0 $8.7 $9.0 $ % 2.4% 8.7% $11.3 $11.6 $ % 0.2% 0.5% $13.3 $13.2 $ % $ % $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 71

72 Medical Average Claim Severity ($ '000s) Hawaii s Average Medical Severity AY Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate

73 Cost per Case ($ '000s) Hawaii vs. Countrywide Average Medical Claim Severity p 2015p Accident Year Hawaii Countrywide p Preliminary based on data valued as of 12/31/2015 Source: NCCI s financial data 73

74 Hawaii Hawaii s Medical Loss Distribution by Injury Type 10.7% 45.8% 43.3% 0.2% Countrywide 12.5% 28.8% 49.5% 9.2% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 74

75 Key Takeaways Medical Benefit Costs Comprise 48% of benefits Increasing faster than countrywide Average costs are lower than countrywide 75

76 Prescription Drugs and Workers Compensation 76

77 Why Are Prescription Drugs (Rx s) an Important Topic in Workers Compensation (WC)? The projected RX share of total WC medical costs for Accident Year 2014 is 17% Rx s average approximately 45% to 50% of annual medical costs for active claims older than 10 years Rx payments reported through NCCI s Medical Data Call were more than $1 billion in 2014 Rx s are among the most active subjects of legislative activity in WC In 2014, Rx price inflation was higher than overall medical price inflation 77

78 2014 Rx Costs per Active Claim Countrywide $429 NCCI analysis based on Medical Data Call, for prescription drugs with a National Drug Code provided in Service Year 2014 High > $582 and Low < $202 Ranges are based on the arithmetic mean ± one standard deviation Data used with permission 78

79 Top Drugs by Share of Cost Drug Name Brand Name/ Generic Therapeutic Class 2013 Cost Ranking 2014 Cost Ranking 2014 Share of Total Rx Costs OXYCONTIN Brand Name Analgesics % LYRICA Brand Name CNS Drugs % GABAPENTIN Generic CNS Drugs % OXYCODONE- ACETAMINOPHEN Generic Analgesics % CELEBREX Brand Name Antiarthritics % DULOXETINE HCL Generic Psychotherapeutic % LIDOCAINE Generic Anesthetics % MELOXICAM Generic Antiarthritics % HYDROCODONE- ACETAMINOPHEN Generic Analgesics % OXYCODONE HCL Generic Analgesics % DULOXETINE HCL is the generic formulation of Cymbalta. Cymbalta s patent expired December 11, Cymbalta s rank changed from 3rd to 47th between 2013 and LIDOCAINE is the generic formulation of Lidoderm. Lidoderm s patent expired September 15, Lidoderm s rank changed from 5th to 34th between 2013 and NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2013 and Data used with permission. 79

80 10 Drugs Account for More Than Half of the 2014 Total Percentage Change in Prices Drug Name OXYCODONE- ACETAMINOPHEN Brand Name/ Generic DEA Schedule 2013 Price Paid per Unit 2014 Price Paid per Unit 2014 Change in Price Paid per Unit Generic 2 $1.19 $ % LYRICA Brand Name 5 $3.74 $ % OXYCODONE HCL Generic 2 $0.63 $ % CELEBREX Brand Name None $5.63 $ % OXYCONTIN Brand Name 2 $6.73 $7.27 8% DUEXIS Brand Name None $6.05 $ % BACLOFEN Generic None $0.65 $ % PERCOCET Brand Name 2 $7.15 $ % MORPHINE SULFATE ER Generic 2 $2.35 $ % IBUPROFEN Generic None $0.30 $ % NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2013 and *2013 price paid per unit based on 2014 NDC distribution. Data used with permission. 80

81 % Change Generic Rx Utilization Increased 13% in % Price Change Utilization Change Rx Cost Change per Active Claim 20% 21% 15% 12% 12% 13% 10% 8% 7% 7% 5% 0% 0% -1% -5% Service Year NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2011 to Price changes are based on a Fisher index. Data used with permission. 81

82 % Change Brand Name Rx Utilization Decreased 18% in 2014 Price Change Utilization Change Rx Cost Change per Active Claim 20% 15% 10% 10% 9% 12% 7% 14% 5% 0% -5% -10% -1% -4% -7% -15% -20% -18% Service Year NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2011 to Price changes are based on a Fisher index. Data used with permission. 82

83 Generic Share of Rx Generic Shares of Rx Costs and Prescriptions Both Increased in 2014 Rx Costs Prescriptions 100% 90% 80% 76% 77% 78% 82% 70% 60% 50% 40% 30% 20% 10% 44% 45% 45% 51% 0% Service Year NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2011 to Data used with permission. 83

84 Three Drugs Account for Most of the 2014 Total Percentage Change in the Generic Share of Rx Costs Drug Name 2013 Price Paid per Unit 2014 Price Paid per Unit 2014 Change in Price Paid per Unit Contribution Recent Events DULOXETINE HCL $5.47 $5.70 4% 38% LIDOCAINE $6.08 $ % 27% The brand name equivalent formulation s (Cymbalta) patent expired on 12/11/2013 The brand name equivalent formulation s (Lidoderm) patent expired on 9/15/2013 OXYCODONE- ACETAMINOPHEN $0.92 $ % 20% Price increased NCCI analysis based on Medical Data Call, for prescription drugs with an NDC provided in Service Years 2013 and Data used with permission. 84

85 2014 Controlled Substances Share of Rx Costs Countrywide 29% NCCI s analysis based on Medical Data Call, for controlled substances with a National Drug Code provided in Service Year 2014 Controlled substances are Rx s classified as Schedule II and III by the Drug Enforcement Administration High > 35.0% and Low < 22.5% Ranges are based on the arithmetic mean ± one standard deviation Data used with permission 85

86 Rx Costs per Active Claim Controlled Substances and Physician-Dispensed Drugs Are a Significant Share of Rx Costs $500 All Other Rx Controlled Substances Physician Dispensing $450 $400 $350 $300 $250 $343 $40 $101 +0% +5% $379 $40 $107 +1% +3% $406 $41 $110 +8% +8% $429 $44 $119 $200 $150 $100 $ % $ % +4% $255 $265 $50 $ Service Year NCCI s analysis based on Medical Data Call, for prescription drugs with a National Drug Code provided in Service Years 2011 to 2014 Controlled substances are Rx s classified as Schedule II and III by the Drug Enforcement Administration, not dispensed by a physician Physician-Dispensed includes Controlled Substances Data used with permission 86

87 % Change Controlled Substances Prices Increased 16% 20% Price Change Utilization Change Rx Cost Change per Active Claim 15% 16% 10% 8% 5% 4% 2% 5% 5% 3% 0% -5% -10% -2% -7% Service Year NCCI s analysis based on Medical Data Call, for controlled substances with a National Drug Code provided in Service Years 2011 to 2014 Controlled substances are Rx s classified as Schedule II and III by the Drug Enforcement Administration, not dispensed by a physician Price changes are based on a Fisher index Data used with permission 87

88 Background Opioid addiction and overdose have reached epidemic levels over the past decade Extended use of opioids can lead to dependency and addiction National public heath epidemic Impacts workers compensation 88

89 Initiatives There are an increasing number of states making legislative and regulatory changes Prescription Drug Monitoring Programs (PDMPs) The Centers for Disease Control and Prevention (CDC) Guideline follows the passage of the Comprehensive Addiction and Recovery Act (CARA) 89

90 PDMPs Introduced in the 1930s as paper-based to track Schedule II drugs 49 states and DC have programs but do not mandate use In states where physician participation in the program is voluntary, prescribers last year checked patient history in the PDMP only 14% of the time before prescribing opioids Mandatory PDMP checks in recently enacted opioid legislation 90

91 CDC Guideline Guideline is evidence-based Recommendations focus on the use of opioids in treating chronic pain The new CDC Guideline includes 12 specific recommendations based on three basic principles 91

92 Recent Legislative Activity Regarding Rx s in Workers Compensation Drug Formularies (several states) Limitation on Physician Dispensing and Repackaged Drugs (AK, IL, MA) Opioid Treatment Plan/Agreement and Drug Adherence (AK, AL, AZ, CO, NH, TN) Choice of Pharmacy (IL, LA, NY) Compensability of Medical Conditions Resulting From WC Prescription Drugs (MS) Pharmacy vs. Pharmacy Benefits Manager (AR) 92

93 Summary and Going Forward The FDA will require a highlighted warning about the serious risks of misuse, abuse, addiction, overdose, and death due to immediate-release opioids Public and private sector actions are being initiated to escalate the fight against prescription opioid abuse There are an increasing number of legislative initiatives to make PDMPs more efficient Studies looking at changes in opioid prescribing patterns following legalization of medical marijuana Potential reimbursement by WC carriers 93

94 Federal Legislative Issues

95 Emerging Issues Occupational Safety and Health Administration (OSHA) Draft safety and health program guidelines Workplace safety initiatives Social Security Disability Insurance (SSDI) Reform SSDI Solutions Initiative recommendations Further congressional action Medicare Set-Aside Reform Congressional Budget Office (CBO) scoring 95

96 Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) Implementation Issues Section 108 Government Accountability Office study: Examine the feasibility of the creation of a capital reserve fund for terrorism losses, as well as the impact of the federal government charging upfront premiums Section 110 Creation of the Advisory Committee on Risk-Sharing Mechanisms Section 111 Reporting of terrorism insurance data 96

97 TRIPRA of 2015 Implementation Section 111 Federal Insurance Office (FIO) Effectiveness Report Carrier Response Overview 52 insurer groups provided some or all of the information requested by FIO Responses received by FIO represent approximately 41% of DEP (direct earned premium) for TRIPeligible insurance lines 11 of the 25 largest insurer groups responded 97

98 TRIPRA of 2015 Implementation Section 111 Federal Insurance Office Effectiveness Report Effectiveness of the Program It was indicated that 18% of workers compensation policies disclosed a zero ($0) charge for terrorism For workers compensation, 2.8% of premium was attributed to terrorism coverage (compared to 2.6% for all covered lines) In response to the hypothetical modeling scenario proposed in the FIO data request, it was determined that a five-ton truck bomb in an urban area would result in approximately $14 billion in insured loss 98

99 TRIPRA of 2015 Implementation Section 111 Federal Insurance Office Effectiveness Report Report Conclusions FIO found no evidence that terrorism coverage would be more available in the absence of TRIP Insurance premiums would likely increase without TRIP Given the nature of the terrorism peril, premiums are difficult to determine with actuarial precision 99

100 Federal Focus on State-Based Workers Compensation System Increased interest in workers compensation: Letter from Congress to the US Department of Labor State workers compensation laws are no longer providing adequate levels of support for workers injured on the job; instead, costs are being shifted to the American taxpayer to foot the bill. Federal Advisory Committee on Insurance (FACI) FACI has indicated its understanding of the importance of workers compensation insurance to the American economy and workers and the issue will remain in the Committee s workflow. Federal Insurance Office (FIO) 2015 Annual Report these state-by-state differences raise important questions regarding the propriety of local standards. 100

101 Recent NCCI Item Filings in Hawaii

102 Experience Rating Premium Eligibility Amounts E-1404 Experience Rating Eligibility This item establishes a methodology for NCCI to calculate and update the experience rating premium eligibility thresholds State-specific premium eligibility amounts will be calculated annually and indexed based on the year-toyear change in a state s Average Weekly Wage, as estimated by the US Bureau of Labor Statistics Quarterly Census of Employment and Wages (QCEW) Effective for risks with rating effective dates six months and later after a state s loss cost/rate effective date, beginning with loss cost/rate effective dates on and after January 1,

103 2016 Update to Retrospective Plan Parameters R-1412 Retrospective Rating Plan Manual Revises the Hazard Group Differentials and Excess Loss Pure Premium Factors (ELPPFs) and Excess Loss and Allocated Expense Pure Premium Factors (ELAEPPFs) in NCCI s Retrospective Rating Plan Manual for Workers Compensation and Employers Liability Insurance. Hazard Group Differentials will become effective January 1, ELPPFs and ELAEPPFs will become effective concurrently with each state s approved rate/loss cost filing on and after October 1,

104 Elimination of Certain Low-Credibility Classifications B-1431 Basic Manual Revises, establishes, and eliminates certain low-credibility classifications Effective concurrent with each state s approved rate/loss cost filing on and after October 1,

105 Dispute Resolution Process and Rules B-1432 Basic Manual This item establishes a national rule and eliminates the various state-specific miscellaneous rules for NCCI s Dispute Resolution Process To become effective July 1,

106 Q & A

107 Closing Remarks Thank You!

108 Glossary

109 Glossary Assigned Risk Adjustment Program (ARAP) An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification. Calendar Year (CY) Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents. Calendar-Accident Year (AY) The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience. Claim Frequency The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers. 109

110 Glossary Claim Severity The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims. Combined Ratio The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period. Detailed Claim Information (DCI) An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim s report to the carrier, etc. Direct Written Premium (DWP) The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums. 110

111 Glossary Indemnity Benefits Payments by an insurance company to cover an injured worker s time lost from work. These benefits are also referred to as wage replacement benefits. Loss Ratio The ratio of losses to premium for a given time period. Lost-Time (LT) Claims Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work. Medical-Only Claims Claims resulting in only medical benefits being paid on behalf of an injured worker. Net Written Premium (NWP) The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded. 111

112 Glossary Permanent Partial (PP) A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction. Policy Year (PY) The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period. Schedule Rating A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk. Take-Out Credit Program An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace. Temporary Total (TT) A disability that totally disables a worker for a temporary period of time. 112

113 Appendix

114 Hawaii s Top Five Class Codes Based on Statewide Payroll CLERICAL OFFICE EMPLOYEES NOC 23.2% 8810 CLERICAL OFFICE EMPLOYEES NOC 25.2% 8810 CLERICAL OFFICE EMPLOYEES NOC 18.6% 8868 COLLEGE PROFESSIONAL EMPLOYEES & CLERICAL 9.4% 8742 SALESPERSONS OR COLLECTORS OUTSIDE 6.1% 8742 SALESPERSONS OR COLLECTORS OUTSIDE 8742 SALESPERSONS OR COLLECTORS OUTSIDE 6.3% 8832 PHYSICIAN & CLERICAL 4.9% 8832 PHYSICIAN & CLERICAL 4.6% 5.6% 9052 HOTEL: ALL OTHER EMPLOYEES & SALESPERSONS, DRIVERS 5.9% 9052 HOTEL: ALL OTHER EMPLOYEES & SALESPERSONS, DRIVERS 3.9% 9082 RESTAURANT NOC 3.8% 8832 PHYSICIAN & CLERICAL 4.1% 8017 STORE: RETAIL NOC 3.6% 8017 STORE: RETAIL NOC 3.4% 114

115 NCCI s Workers Compensation Resources Financial Aggregate Calls Used for aggregate ratemaking Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Used for class ratemaking Detailed Claim Information In-depth sample of lost-time claims Policy Data Policy declaration page information 115

116 Financial Aggregate Calls Collected Annually Policy and calendar-accident year basis Statewide and assigned risk data Premiums, Losses, and Claim Counts Evaluated as of December 31 Purpose Basis for overall aggregate rate indication Research 116

117 Policy Year Financial Aggregate Data Policy Expiration Date Policy Year 2012 Policy Year 2013 Policy Year /1/2012 1/1/ /31/2013 1/1/ /31/2016 Policy Effective Date 117

118 Calendar-Accident Year Financial Aggregate Data Policy Expiration Date Calendar- Accident Year 2013 Calendar- Accident Year 2014 Calendar- Accident Year /1/2013 1/1/ /31/2014 1/1/ /31/2017 Policy Effective Date 118

119 Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data Experience by Policy Detail Exposure, premium, and experience rating modifications Individual claims by injury type Purposes Classification relativities Experience Rating Plan Research 119

120 Valuation of Statistical Plan Data 1st Report Valuation 2nd Report Valuation 3rd Report Valuation 4th Report Valuation 5th Report Valuation Policy Effective 18 Months 30 Months 42 Months 54 Months 66 Months 120