New Mexico Workers Compensation System STATE OF THE LINE

Transcription

1 New Mexico Workers Compensation System STATE OF THE LINE Presented By: C. Quinn Lopez, Vice President General Counsel October 2017 NEW MEXICO MUTUAL

2 DISCLAIMER Any positions, comments or opinions expressed are the presenter s personal views and should in no way represent or be construed as official positions, comments or opinions of New Mexico Mutual. To the extent permitted by law, New Mexico Mutual or its employees do not accept or assume any liability, responsibility, or duty of care for any consequences of anyone acting, or refraining to act, in reliance upon information contained in this presentation. Any comments, opinions, and information presented are for informational purposes and not to be substituted for legal, business, or other professional advice or recommendations. The presenter does not hereby provide such advice and makes no representation or warranty (express or implied) as to any legal results through this presentation. No one should act upon the information containedinthispresentation without obtaining appropriate legal, business, or other appropriate professional advice specific to their facts and circumstances, industry, business, and applicable laws and regulations. 2

3 New Mexico Snapshot Land People New Mexico Market Small Medium Size Employers Service Industries 55% Health Care/Social Assistance 16% Public Administration 8% Mining & Manufacturing 7% Construction 6% Oil & Gas Industry 12.5% of General Fund Average Total Wages $21.2M ( ) Average Total Written Work Comp Premium $216M Unemployment 6.7% (2017) Average Total WC Premium $216M ( ) Private Sector Job Growth Indicator 3

4 1980 s Work Comp Crisis Claims and Claim Costs Sky Rocketed , New Mexico ranked: 5 th Average Medical Cost Per Claim 1 st Permanent Total Disability Claims 8 th Permanent Partial Disability Claims ABQ Journal, August 5, , New Mexico ranked 4 th in overall medical costs, with $19 million per 100,00 workers, up from $18 million in 1998, placing the state behind high cost states such as California, Minnesota, and Oregon. ABQ Journal, August 6,

5 1980 s Work Comp Crisis Litigation & Legal Fees Sky Rocketed Liberal Case Decisions from Court of Appeals. Employers forced to settle rather than challenge the validity of claims or endure high litigation costs and unknown outcomes. ABQ Journal, August 5, 1990 Ultimately, going to court is seen as the best way to get the largest settlement. ABQ Journal August 5, 1990 Trial lawyers have an interest in keeping avenues open for workers to obtain settlements in court cases and in preserving their ability to earn fees representing them. ABQ Journal August 7, 1990 We see attorneys all the time try to direct people to medical care, and this really not good for the patient. Dr. Allen Gelinas, ABQ Journal August 6,

6 1980 s Work Comp Crisis Workers' Compensation Total Costs Total Reported Costs for Workers' Compensation in New Mexico July, June 1989 Category Cost % of Total Cost Estimated No. of Cases DISABILITY PAYMENTS Temporary partial $2.7 million 1.50% 422 Temporary Total $60.8 million 35.50% 19,108 Permanent Partial $5.3 million 3.10% 503 Permanent Total $856, % 81 High Total Claim Costs & High Premiums High Indemnity Costs $69.6M ATTORNEY FEES $9.3 million 5.40% MEDICAL PAYMENTS Hospitalization $8.6 million 5.00% Physician and Office $70.4 million 41.10% Medication $1.7 million 1.00% Therapy $5.1 million 3.00% High Attorney Fees $9.3M High Medical Costs $85.8 M OTHER (Includes funeral, depositions, travel vocation training) $6.7 million 3.90% High Other Costs $6.7M TOTAL $171 million 20,144 cases Source: Draft report from the state w orkers' compensation division. (Includes statistics from 233 insurance carriers and 92 self-insured companies; 18 insurance carrers and one self-insured company did not report. - ABQ Journal, August 6, 1990 Total Claim Costs $171M 6

7 1980 s Work Comp Crisis Workers Compensation Rate Explosion. Ted Knight, Chief Deputy Commissioner of Insurance 1989 In 1989, NCCI recommended: 51.8% increase in Voluntary Premiums, an additional cost of $67.1 million 64.5% increase in Assigned Risk Pool Premiums ABQ Journal September 30, 1989 Insurers reported an operating loss of 21.1% on Workers Compensation, including taxes, overhead and earning on investments. ABQ Journal October 23, 1989 Only 4 Carriers Willing to Write in New Mexico, down from 150 Carriers 6,000 New Mexico Employers in the Assigned Risk Pool ABQ Journal September 30, 1989 Assigned Risk Pool was 30% of state s premium volume, and lost $39 million. ABQ Journal October 23,

8 1980 s Work Comp Crisis NM Employers could not obtain affordable coverage or compete with out ofstate employers. NM Workers could not find jobs; 9% unemployment rate in Small Medium Employers & Employers in Key High Risk Industries (e.g., Oil & Gas or Construction) were forced into Assigned Risk Pool. Simply stated, many small business with less than 20 employees are faced with the prospect of closing their doors in the face of skyrocketing workers compensation premiums. George Friberg, Chamber of Commerce, September 9, 1990 Employers need lower premiums. Employees need protections if they are injured on the job. Neal Gonzales, President of state AFL CIO, July 23, 1990 No. 1 impediment to economic development in the state. Gov. Carruthers April 13,

9 NM Work Comp Reforms Workers Compensation Division of NM Department of Labor Alternative Dispute Resolution System by Mediation Employers pay 75% of worker s attorney fees Workers Compensation Administration Stand Alone Agency Disability Formula Mandated Safety Inspections Legal Fee Cap of $12,500. Employers pay 50% of worker s attorney fees. Workers Compensation Judges Medical Fee Schedule, Utilization Review, & Medical Case Management Self Insurance Guaranty Fund 1991 New Mexico Mutual Casualty Company established as a mutual private insurance company. Assure competitive coverage for employers of all sizes and industries throughout New Mexico. Stabilize rates and assist lawmakers and regulators in maintaining the System. 9

10 NM Work Comp Reform Success New Mexico Work Comp Reform & System SUCCESS! Competitive Market & Assured Coverage for NM Employers Exclusive Remedy (c. 1953) continues to Shield Employers from Tort Liability Quick & Efficient Delivery of Wage & Medical Benefits to Injured Workers Improved Workplace Safety Captured NM Data to Guide Lawmakers & Regulators Controlled Legal Costs & Minimized Litigation Business Climate Conducive to Investment, Economic Development, & Job Growth 2000 New Mexico had the 42nd Lowest Work Comp Rates Nationally 10

11 Work Comp Premium Trends Source: Source: 1 1

12 Work Comp Premium Trends Source: 12

13 Work Comp Challenges What has happened? Economy Total Written Premium Wages Employment Rate Methods Claim Costs Wage Benefits Medical Benefits High Relative Benefit Levels Litigation Case Law Erosion & Benefit Expansion Increased Litigation Increased Legal Costs 13

14 Economic Challenges NM s Average Total Written Premium (driven by payroll, wages, & employment) is $216M. State has not successfully grown private sector jobs or effectively competed regionally. 14

15 Economic Challenges 15

16 Economic Challenges New Mexico s total wages (payrolls) have remained flat and uncompetitive regionally. 16

17 Economic Challenges 0.2% for

18 Economic Challenges 6.7% for

19 Economic Challenges New Mexico s economy is over dependent upon: Low Wage Service Industries Volatile Commodity Sectors such as Oil & Gas 19

20 (5.0) (10.0) (15.0) (20.0) (25.0) (30.0) 5.2 Rate Challenges 7 Years Post Reform NCCI Historical Loss Cost Change % Increase Years % Increase Years 5 Years 7 Years (4.2) (5.7) (4.9) (4.5) (6.9) (6.7) (6.2) 20.3% Decrease (14.8) (15.8) (16.4) (15.1) (16.2) (9.0) (22.8) 97% Decrease Post Crisis & Reform Great Recession 31.4% Decrease 20 % Change in Loss Costs 8/1/ /1/ /1/1994 1/1/1996 1/1/1997 1/1/1998 1/1/1999 1/1/2000 1/1/2001 1/1/2002 1/1/2003 7/1/2003 1/1/2004 1/1/2005 1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017 1/1/2018 Oil & Gas Frack Boom

21 Rate Challenges Annual Aggregate Rate Making trend shows wide fluctuations that can be out of sync with recent changes in the economy, as they are based on normalized data of 3 past policy periods, not including most recent 18 months. 21

22 Rate Challenges Annual Class Rates for individual industries also fluctuate significantly. Difficult for Employers to Consistently Budget for Costs Difficult for Industry to Maintain Rate Adequacy through Cycles or Sudden Economic Changes 22

23 Rising Medical Costs Indemnity Costs Claim Cost Challenges +8% New Mexico s Lost Time Indemnity Claim Severity in 4 Years 23

24 Rising Claim Severity Indemnity Costs Claim Cost Challenges New Mexico s Average Indemnity Claim Severity Doubled from 1999 to

25 Rising Claim Severity Medical Costs Claim Cost Challenges +10% New Mexico s Lost Time Medical Claim Severity in 4 Years 25

26 Claim Cost Challenges Rising Claim Severity Medical Costs New Mexico s Average Medical Claim Severity Doubled from 1999 to

27 Claim Cost Challenges Rising Claim Severity Causes Indemnity Costs Medical Costs Relative Benefit Levels Overall HIGH Case Law Erosion & Benefit Expansion Return to Work Disincentives & Challenges Medical Inflation & New Technology Utilization Review & Case Management Ineffective Prescription Medications Costs 27

28 Litigation Challenges LEGAL ENVIRONMENT New Mexico Legal Climate Report Card 2017 In 2017, the U.S. Chamber of Commerce conducted a national survey of senior inhouse counsel and litigators, which ranked the legal climate of states and assessed the fairness and reasonableness of state liability systems. 85% of respondents reported that a state s legal environment is likely to impact important business decisions. New Mexico ranked as the 32 nd worst state legal environment in the country. Categories Ranking Overall Treatment of Tort and Contract Litigation 25 Enforcing Meaningful Venue Requirements 37 Treatment of Class Action Suits & Mass Consolidation Suits Quality of Appellate Review 32 Damages 38 Proportional Discovery 32 Scientific and Technical Evidence 28 Trial Judge Impartiality 29 Trial Judge Competence 27 Jury Fairness 36 Overall 32 Source: Full Report with Questionnaire FINAL.pdf 28 12

29 Litigation Challenges Mediations, Trials, & Appeals Exclusive Remedy Challenge Cases Disputed Causation & Disputed Benefit Cases Employers pay 100% of defense costs & 50% of plaintiff costs In 2016, the NM Work Comp System had: 41,908 Total Claims Only 4% of contested claims proceed to formal trial Legal Costs = 6% of Average Total Per Indemnity Claim Source: 2017 WCA Annual 29 Report

30 Litigation Challenges Case Law Erosion Since 1990 Expanded Coverage & Benefits Challenged the Exclusive Remedy (c. 1953) Liberalized Expert Witness Testimony and IME Standards for Workers Restricted Expert Witness Testimony and IME Standards for Employers Allowed Forum Shopping for Workers Relaxed Statute of Limitations Restricted the Medical Information Exchange between Health Care Providers & Payors Inhibited Effective Utilization Review or Medical Case Management Discouraged Return to Work Incentives Limited Subrogation Recovery by Employers Increased System Inefficiencies and Costs 30

31 Solutions Indemnity Costs Solutions Indemnity Costs Preserve System Resources to Benefit ALL Employees, Employers, and New Mexico Economy: Expand Subrogation Recovery for Employers Improve Exchange of Medical Information between Payers and Health Care Providers Assess NM Benefit Levels Regionally & Adjust Incent Return to Work for Employers & Employees Increase Penalties for Insurance Fraud Economic Growth & Encourage Business Investment 31

32 Solutions Medical Costs Solutions Medical Costs Effectively Manage Medical Costs to Maximize Medical Rehabilitation Outcomes: Evidence Based Standards to Treatment of Work Related Injuries & Illnesses (e.g., ODG) Enhance Utilization Review Regulatory Process of WCA Improve Exchange of Medical Information Between Payers and Health Care Providers Periodic Evaluation to Continue Benefits by WCA Assess NM Medical Fee Schedules & Benefits Regionally and Adjust Prescription Drug Formulary Chronic Pain Management to Reduce Opioid Dependency 32

33 Solutions Litigation & Legal Costs Solutions Litigation & Legal Costs Mitigate Litigation and Legal Costs: Improve Service, Information, & Ombudsman Services for Injured Workers Objective & Fair Choice of Venue Standards Objective & Fair Expert Witness Qualification & Admissibility Standards Re Establish & Enforce Statute of Limitations Preserve Exclusive Remedy Promote Efficient Judicial Case Management Judges with Work Comp Expertise 33

34 Summary What New Mexico Employers can do? Know the History & Objectives of the Work Comp Reforms & System Acknowledge the Successes of the NM Work Comp Reforms & System Support Lawmakers, Regulators, & Judges that understand the Value of the Work Comp System for New Mexico Advocate for Laws & Regulations to Maintain the Work Comp System Remain Committed to Improve Workplace Safety & Return to Work Solutions Remember that the System s long term success and integrity is essential for a healthy business climate for investment, employment, and economic development. 34