WCIRB Research Forum Presenters

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1 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a WCIRB Research Forum Report on June 3, 16 Insurer Experience and Evaluation of SB 116 The webinar will begin shortly Notice The information provided in this Presentation was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this Presentation. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this Presentation. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. WCIRB Research Forum Presenters Dave Bellusci EVP & Chief Actuary Tony Milano VP, Actuary 1

2 Written Premium $ Billions Written Premium - Gross of Deductible Credits Written Premium - Net of Deductible Credits Source: Insurer aggregate financial data submissions to the WCIRB Months Calendar Year Industry Average Charged Rate per $1 of Payroll 8. $ Dollars Source: Insurer unit statistical reports through 13 and WCIRB projections for 14 through /3-1/4-7/4-1/5-7/5-1/6-7/6-1/7-7/ /12-7/ /15-7/15-1/16-12/3 6/4 12/4 6/5 12/5 6/6 12/6 6/7 12/7 6/12 12/12 6/15 12/15 6/16 Policy Effective Period 2

3 Projected Ultimate Losses and ALAE by $ Billions As of June 3, Projected Ultimate Loss and ALAE Ratios % As of June 3,

4 15 1 Projected Combined Loss and Expense Ratios* Other Expenses LAE Losses * The cost of medical cost containment programs is reflected in LAE for accident years 11 and subsequent. It is reflected in losses for all other accident years As of June 3, 16 Calendar Year Combined Loss and Expense Ratios Source: Insurer aggregate financial data submissions to the WCIRB Other Expenses LAE Losses Calendar Year 4

5 Projected Percentage Change in Indemnity Claim Frequency by % As of June 3, [1] 2.2 [1] [1] [1] The estimate is based on partial year unit statistical data. The and estimates are based on a comparison of claim counts based on WCIRB accident year experience as of June 3, 16 relative to the estimated change in statewide employment. Prior years are based on unit statistical data. Projected Ultimate Total Loss* and ALAE per Indemnity Claim $ Dollars As of June 3, 16 1, 8, 6, Average Ultimate Indemnity + Medical + ALAE per Indemnity Claim 69,147 67,141 67,37 65,984 62,38 58,1 58,513 57,127 8,517 81,55 8,722 79,994 82,859 78,895 77,76 75,893 4,, * Excludes medical-only. 5

6 Projected Ultimate Indemnity per Indemnity Claim $ Dollars As of June 3, 16 35, 3, 25,, 27,94 26,232 25,761 24,74 24,87 25,88 25,582 25,59 24,731 24,932 22,5,992,657,921 28,27 26,886 15, 1, 5, Projected Ultimate Medical* per Indemnity Claim $ Dollars As of June 3, 16 6, Average Ultimate Medical per Indemnity Claim - Including MCCP Costs Average Ultimate Medical per Indemnity Claim - Excluding MCCP Costs 5, 4, 37,67 41,169 43,598 44,175 44,53 42,813 41,81 41,234 4,525 4,599 38,95 37,126 36,523 37,53 3, 32,54 33,85 33,423 31,623 29,385 3,348 27,41, 1, *Excludes medical-only. 6

7 Projected Ultimate ALAE per Indemnity Claim* (Excluding MCCP Costs) $ Dollars 15, As of March 31, 16 13,598 12,59 11,747 11,298 11,133 11,351 11,111 1, 7,57 8,6 8,53 8,136 7,858 8,228 8,977 9,917 5, 5,11 6, * Based on data submitted by private insurers only. Projected Ultimate Losses Less Reported Losses at Successive December 31 Evaluations $ Billions As of June 3, and insurer reported losses on aggregate financial data submissions to the WCIRB Evaluation Year Note: The cost of medical cost containment programs is excluded from losses for accident years 11 and subsequent and included in losses for all other accident years

8 SB 116 Key Provisions Utilization Review (UR) For 1/1/ and later injuries accepted as compensable, medical treatment consistent with the medical treatment utilization schedule within 3 days of date of injury authorized without prospective UR Does not apply if physician not within MPN or HCO or not predesignated by employee or selected by the employer Does not apply to all treatments (e.g., non-emergency inpatient or outpatient surgery, home health, most imaging or radiology services, psychological treatment, $25+ durable medical equipment) Will be integrated with new drug formulary to be adopted by 7/1/17 Requires accreditation of insurer UR processes by independent organization by 7/1/ Requires AD to develop system for electronic submission of information on each UR decision to the DWC by 7/1/ Impact of SB 116 UR Provisions Estimated Reduction in UR Costs Due to Restriction on UR (1) MCCP as % of Total Loss & LAE (1/1/17 Filing) 4% (2) UR as % of Total MCCP Costs (CWCI) 55% (3) UR as a % of Total Loss & LAE (1) x (2) 2% (4) % of UR in First 3 Days from Date of Injury (CWCI) 5% (5) % of First 3 Days Treatment Exempted in SB 116 1% (WCIRB Medical Transaction Data) (6) Estimated % Reduction in Total Loss & LAE.1% (3) x (4) x [1 (5)] 8

9 Impact of SB 116 UR Provisions Estimated Increase in Medical Costs Due to Restriction on UR (1) Medical Loss as % of Total Loss & LAE (1/1/17 Filing) 43% (2) % of Ultimate Medical Losses in First 3 Days 9% (3) % of Total Medical Services Subject to UR (CWCI) 15% (4) % of Medical Services Modified or Denied at UR (CWCI) 28% (5) % of First 3 Days Treatment Exempted in SB 116 1% (WCIRB Medical Transaction Data) (6) Estimated % Increase in Total Loss & LAE.1% (1) x (2) x (3) x (4) x [1 (5)] Impact of SB 116 UR Provisions Summary of Potential Impact on 17 Pure Premium Rates Applies to injuries on or after 1/1/ Savings related to reduced UR relatively small Additional costs due to increased medical treatment within 3 days now being denied through UR relatively small WCIRB recommended no adjustment to proposed 17 pure premium rates WCIRB to monitor indirect impacts on medical treatment within first 3 days 9

10 SB 116 Provisions on Liens Liens filed by provider stayed upon filing of criminal fraud charges Stay in effect until the disposition of the criminal proceedings Consolidated process for liens following criminal conviction (AB 1244) AD authorized to promulgate rules for implementation Liens filed after 1/1/17 require declaration under penalty of perjury that dispute is not subject to IMR or IBR and meets other requirement (e.g., provider in an MPN or was acting as AME or QME, emergency treatment) All liens filed after 1/1/17 shall not be assigned to a third party Exception if provider ceased doing business in the capacity the expenses were incurred and has assigned all rights to the assignee Liens Filed Counts by Quarter & Region Liens Counts Increasing Sharply Beginning in 15 In EAMS Lien Filings Rest of State LA 12 (Total): 1, : -69% 13 (Total): : +95% 14 (Total): : +91% 15 (Total): (6 mos.) to 16 (6 mos.): +35% Source: Division of Workers Compensation EAMS Liens Data Q1 12 Q2 12 Q3 12 Q4 13 Q1 13 Q2 13 Q3 13 Q4 14 Q1 14 Q2 14 Q3 14 Q4 15 Q1 15 Q2 15 Q3 15 Q4 16 Q1 16 Q2 Calendar Quarter 1

11 Impact of SB 116 Lien Provisions Current Estimated Cost of Liens Medical cost of liens as % of total medical losses (WCIRB report on 15 insurer losses and expenses): 6.1% Medical cost of liens as % total loss & LAE (1/1/17 Filing): 2.6% Approx. total lien cost (incl. LAE) as % total loss & LAE: 6% Latest estimate of SB 863 lien savings: 2.5% or $48 million annually (equates to 4% reduction in lien filings) 1%+ increase in lien filings in 15 & 16 eroding savings Impact of SB 116 Lien Provisions Impact on Liens Filed Prior to 1/1/17 Stay on liens filed by lien claimants under fraud indictment Per DWC: 1% of liens filed between filed by providers with fraud indictments/convictions (9% of lien demand amounts) Total demands of providers with fraud indictments/convictions adjusted for LAE and interest: approximately $1 billion Regulations on lien resolution process following fraud conviction pending Savings on existing claims depends on percent of liens dismissed: if 5% of liens dismissed assuming 3% average recovery and $3K per lien in LAE costs on pre-1/1/17 claims: $25 million in savings Declaration under penalty of perjury required by 7/1/17 Approximately 1 million liens filed since 1/1/13 Impact uncertain but potentially significant 11

12 Impact of SB 116 Lien Provisions Impact on 17 Policies Factors Suggesting Reductions in Lien Filings Stay on lien filed by lien claimants under fraud indictment Criminal indictments of lien filers that accounted for 1% of historical liens likely to affect future lien filings Could impact other system costs Declaration required on all liens filed after 1/1/17 Per DWC: liens will be automatically dismissed at filing if not accompanied by declaration Should impact zombie and balanced billing liens Works in conjunction with lien filing fee, -month statute of limitations and new restrictions on lien assignments Impact of SB 116 Lien Provisions Impact on 17 Policies Factors Suggesting Reductions in Lien Filings Restrictions on Assignments of Liens Per DWC: declaration must be from provider and settlement payment must be made to provider DWC estimates that % to 25% of liens filed in 13 through 15 were assigned Significant increase in lien concentration in 15 (approximate increase of 1% of liens filed by top 1 lien claimants in 15) 12

13 Impact of SB 116 Lien Provisions Impact on 17 Policies Offsetting Factors Some lien filers may transition from lien assignees to lien collection agents Declaration requirements may result in increases in IBR & IMR Liens initially dismissed potentially re-filed with declarations If liens without declaration not dismissed at time of filing, LAE costs may not be impacted Liens can be filed if medical treatment has been neglected or unreasonably refused (may pertain to disputed claims or body parts) Potential legal challenges to SB 116 provisions (e.g., restriction on assignments) Liens can be assigned if provider ceased doing business in capacity in which expenses were incurred Impact of SB 116 Lien Provisions Summary of Potential Impact on 17 Pure Premium Rates Impact on Pre-17 Liens Provisions related to fraud and declaration may impact pre-17 liens and medical loss and LAE development of pre-17 accident years WCIRB to assess impact on loss development in future rate filings Impact on Post-17 Liens Provisions related to fraud, declaration and assignment may impact the volume of post-17 liens A number of factors may offset potential savings WCIRB projects 1% reduction in lien filings, or -.6% on 17 pure premium rates ($135 million in system-wide annual savings) 13