WCIRB Actuarial Committee Meeting

Transcription

1 WCIRB Actuarial Committee Meeting of June 11, 2014 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 Actuarial Committee Meeting Materials Presented at the WCIRB Actuarial Committee Meeting December 6, 2017

2 WCIRB Actuarial Committee Meeting of June 11, 2014 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 Workers Compensation Insurance Rating Bureau of California. All rights reserved. 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, WCIRB CompEssentials, 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.

3 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 Experience of Large Deductible Policies WCIRB Actuarial Committee Meeting December 6,

4 Experience of Large Deductible Policies Annually the Actuarial Committee Reviews the Experience of Large Deductible Policies (December 31 Experience) Findings in Prior Actuarial Committee Evaluations Large deductible market proportion relatively stable Paid development patterns are generally similar to non-large deductible policies Impact of excluding large deductible experience from the rate level computation is relatively modest No adjustment to rate level computation needed 4

5 Distribution of Calendar Year Premiums (Exhibit 1.1) 50 % Written Premium at Pure Premium Rate Level Large Deductible Insurers - Large Deductible Large Deductible Insurers - Non-Large Deductible Other Insurers - Non-Large Deductible Calendar Year 5

6 1.900 WCIRB Actuarial Committee Meeting of December 6, 2017 Incurred Medical Development (Exhibit 3.2) LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 12 to 24 Months LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 24 to 36 Months Accident Year 6

7 Paid Medical Development (Exhibit 3.4) LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 12 to 24 Months LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 24 to 36 Months Accident Year 7

8 WCIRB Actuarial Committee Meeting of December 6, 2017 Reported Indemnity Claim Count Development (Exhibit 6.1) LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 12 to 24 Months Evaluated from 24 to 36 Months LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Accident Year 8

9 1.450 WCIRB Actuarial Committee Meeting of December 6, 2017 Reported Total Claim Count Development (Exhibit 6.2) LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 12 to 24 Months LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated from 24 to 36 Months Accident Year 9

10 11,000 9,000 WCIRB Actuarial Committee Meeting of December 6, 2017 Average Incurred Indemnity Per Reported Claim (Exhibit 4.1) $ LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated as of 12 Months 9,641 9,507 9,062 9,809 9,723 9,597 10,066 9,966 9,795 7, ,000 15,000 LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated as of 24 Months 14,800 14,808 15,547 14,572 14,426 14,359 16,241 15,140 15,039 13, Accident Year 10

11 10,000 WCIRB Actuarial Committee Meeting of December 6, 2017 Average Outstanding Indemnity Per Open Claim (Exhibit 4.4) $ LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience Evaluated as of 12 Months 8,988 8,850 9,266 9,340 9,636 9,505 8,000 7,388 7,859 8,120 6, ,000 14,000 Evaluated as of 24 Months LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience 13,135 13,163 14,390 14,268 12,000 12,947 12,997 11,078 12,117 12,655 10, Accident Year 11

12 Average Paid Indemnity Per Closed Claim (Exhibit 4.2) $ Evaluated as of 12 Months 2,700 2,200 LD Experience Non-LD Experience from Insurers Writing LD All Non-LD Experience 2,217 2,119 2,059 2,430 2,305 2,197 2,649 2,415 2,314 1,700 1, Evaluated as of 24 Months 6,500 LD Experience Non-LD Experience from Insurers Writing LD Non-LD Insurer Experience 5,972 6,602 5,943 5,500 5,388 5,345 5,279 5,467 5,386 5,822 4,500 3, Accident Year 12

13 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 9/30/2017 Experience Review of Methodologies WCIRB Actuarial Committee Meeting December 6, 2017

14 Summary of September 30, 2017 Experience Almost 100% of market reflected Same methodologies as in 1/1/18 Filing Projected policy year 2018 loss ratio: point decrease from Amended 1/1/18 Filing (0.641) 2.3 point decrease from lower loss development 1.0 point increase from updated wage forecast 4

15 Quarterly Incurred Indemnity Development (Exhibit 9.1) 1.45 From 12 to 15 Months From 18 to 21 Months From 15 to 18 Months From 21 to 24 Months From 24 to 27 Months From 27 to 30 Months From 30 to 33 Months From 33 to 36 Months Accident Year 5

16 Quarterly Incurred Medical Development (Exhibit 9.2) From 12 to 15 Months From 18 to 21 Months From 15 to 18 Months From 21 to 24 Months From 24 to 27 Months From 27 to 30 Months From 30 to 33 Months From 33 to 36 Months Accident Year Note: MCCP development is included in incurred medical loss development for 2011 and prior. 6

17 Quarterly Paid Indemnity Development (Exhibit 9.3) 1.70 From 12 to 15 Months From 18 to 21 Months From 15 to 18 Months From 21 to 24 Months From 24 to 27 Months From 27 to 30 Months From 30 to 33 Months From 33 to 36 Months Accident Year 7

18 Quarterly Paid Medical Development (Exhibit 9.4) From 12 to 15 Months From 18 to 21 Months From 15 to 18 Months From 21 to 24 Months From 24 to 27 Months From 27 to 30 Months From 30 to 33 Months From 33 to 36 Months Accident Year Note: MCCP development is included in paid medical loss development for 2011 and prior. 8

19 Cumulative Incurred Development by Quarter 4.50 Incurred Indemnity from 12 to 108 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Incurred Medical from 12 to 108 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 9

20 Cumulative Paid Development by Quarter Paid Indemnity from 12 to 108 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Paid Medical from 12 to 108 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 10

21 Cumulative Incurred Development by Quarter 1.20 Incurred Indemnity from 108 to 228 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Incurred Medical from 108 to 228 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 11

22 Cumulative Paid Development by Quarter 1.30 Paid Indemnity from 108 to 228 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Paid Medical from 108 to 228 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 12

23 Cumulative Incurred Development by Quarter Incurred Indemnity from 228 to 360 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Incurred Medical from 228 to 360 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 13

24 Cumulative Paid Development by Quarter Paid Indemnity from 228 to 360 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q Paid Medical from 228 to 360 Months Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter and Year 14

25 Change in Projected Medical Development Factor June 30, 2017 to September 30, 2017 Experience 4% Change in Projected Development Factor for Period 3% 2% 1% 0% -1% -0.4% -0.4% -0.3% -2% -3% -2.8% -4% 12-to-108 (Latest Year Paid) 108-to-228 (3-Year Avg. Paid) 228-to-372 (6-Year Avg. Incurred) 372-to-Ultimate (Inverse Power Curve Fit to 6-Year Avg. Incurred) 15

26 Change in Total Medical Case Reserves and Payments by Quarter Change in Total Medical Case Reserves by Quarter ($s in millions) Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 $ Calendar Quarter & Year Change in Total Medical Payments by Quarter ($s in millions) Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 Calendar Quarter & Year Source: WCIRB Quarterly Calls for Experience 16

27 2.000 Indemnity Claim Count Development (Exhibit 10.1) From 9 to 21 Months From 21 to 33 Months From 33 to 45 Months Accident Year 17

28 Indemnity Claim Settlement Ratios (Exhibit 11.2) 50 % % of Ultimate Indemnity Claims Closed At 21 Months At 33 Months At 45 Months At 57 Months Accident Year 18

29 Projected Ultimate Indemnity Loss Ratios (Exhibit 3.1) 30.0 % 6/30/2016 9/30/ /31/2016 3/31/2017 6/30/2017 9/30/ Accident Year Note: All loss ratios are adjusted to the loss development methodology reflected in the 9/5/2017 Agenda and may not be comparable to the actual loss ratios projected at that time. 19

30 Projected Ultimate Medical Loss Ratios (Exhibit 3.2) 40.0 % 6/30/2016 9/30/ /31/2016 3/31/2017 6/30/2017 9/30/ Accident Year Note: All loss ratios are adjusted to the loss development methodology reflected in the 9/5/2017 Agenda and may not be comparable to the actual loss ratios projected at that time. 20

31 BLS Historical & UCLA Forecasts of Wage Level Changes (Exhibit 5.1) 6.0 % Jun 2016 Dec 2016 Mar Jun 2017 Sep Year 21

32 Estimated Change in Indemnity Claim Frequency (Exhibit 12) 15 % Change As of September 30, * 16-17* 9 Months Accident Year * Based on changes in reported aggregate indemnity claim counts compared to changes in statewide employment. All other estimates based on unit statistical indemnity claims compared to reported insured payroll. 22

33 Change in On-Level Indemnity Severity (Exhibit 6.2) 15 % Change As of September 30, Accident Year Annual Exponential Trend Based on: 2005 to 2016: -0.3% 2011 to 2016: -1.4% Agenda Selected (Based on Amended 1/1/2018 Filing): 0.7% 23

34 Estimated Ultimate Medical (Incl. MCCP) Per Indemnity Claim (Exhibits 6.3 & 6.4) 60,000 $ As of September 30, ,000 40,000 30,000 20,000 Post-1989 Reform Act % Annual Trend Post-Minniear Period % Annual Tend 32,381 Post-SB 899 Reform Period % Annual Trend 29,486 SB 899 Reform Period % Annual Trend 41,969 SB 863 Period % Annual Trend Post-SB 863 Period % Trend 37,308 36,621 10,000 13,418 8, Accident Year 24

35 Change in On-Level Medical Severity Excluding MCCP (Exhibit 6.4) 20 % Change As of September 30, Accident Year Annual Exponential Trend Based on: 2005 to 2016: +2.3% 2011 to 2016: -0.5% Agenda Selected (Based on Amended 1/1/2018 Filing): 3.0% 25

36 Indemnity Severity Changes at 9 Months Compared to Ultimate % % Change in Indemnity Severity Incurred Indemnity per Ind. Months Paid Indemnity per Ind. Months Projected Ultimate Indemnity per Ind. Claim (@9/30/17) Accident Year Source: WCIRB Quarterly Calls for Experience 26

37 Medical Severity Changes at 9 Months Compared to Ultimate % % Change in Medical Severity Incurred Medical per Months Paid Medical per Months Projected Ultimate Medical per Ind. Claim (@9/30/17) Accident Year Source: WCIRB Quarterly Calls for Experience. MCCP included in all 6-month severities. MCCP excluded from ultimate severities for 2012 & forward. 27

38 Indemnity Loss Trend & Projections (Exhibit 7.1) Projected On-level Indemnity Loss Ratio Frequency & Severity Trends Applied to Latest Two Years Latest Year Reform & Claim Settlement Rate-Adjusted Paid Development Method Frequency & 0.7% Severity Trends Applied to Latest Two Years Exponential Trend Fit to 2011 to % -1.0% % +1.8% % %* Annual Exponential Trend Based on: 2005 to 2016: +1.1% 2011 to 2016: -1.5% * Implied average annual growth rate for selected trending method /1/2019 Accident Year 28

39 Medical Loss Trend & Projections (Exhibit 7.3) Latest Year Reform & Claim Settlement Rate-Adjusted Paid Development Method Frequency & 3.0% Severity Trends Applied to Latest Two Years Projected On-level Medical Loss Ratio Exponential Trend Fit to 2011 to % -0.5% -0.3% +2.4% -0.5% +1.6%* Annual Exponential Trend Based on: 2005 to 2016 (incl. MCCP): +4.5% 2011 to 2016: -0.3% * Implied average annual growth rate for selected trending method /1/2019 Accident Year 29

40 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 Legislative Cost Monitoring WCIRB Actuarial Committee Meeting December 6, 2017

41 Legislative Cost Monitoring SB 863 Enacted in 2012, most items first effective in 2013/2014 Final comprehensive SB 863 Cost Monitoring Report published in November of 2016 Committee recommended continuing to review some items that continue to emerge (PD, RBRVS, etc.) SB 1160 / AB 1244 Enacted in 2016, first effective in 2017 (liens) and 2018 (UR) Review of first nine months of lien reforms Initial review of recent lien dismissals by DWC 4

42 SB 863 Changes to PD Ratings SB 863 changes to PD ratings Elimination of FEC factor (& Ogilvie adjustments) Addition of uniform 1.40 adjustment factor Elimination of PD rating add-ons Combined impact of PD rating changes estimated to increase costs by 1.2% Prior reviews of DEU ratings showed increases in average rating consistent with initial estimates 5

43 Average PD Ratings Based on DEU Data 30 % Ratings Issued within 15 Months of DOI Average Final Rating Ratings Issued between 15 and 27 Months of DOI 25.8 Ratings Issued between 27 and 39 Months of DOI % Pre-SB 863: Ratings 20.6 Increasing 4% Annually % Pre-SB 863: Ratings 15.2 Increasing 4% Annually % 11.6 Pre-SB 863: Ratings Increasing 2% Annually Accident Year Source: Disability Evaluation Unit data. 6

44 Average PD Ratings Based on USR Data (Exhibit 1.1) 25 % Average Estimated PD Rating 1st Report Level 2nd Report Level 3rd Report Level Accident Year Source: WCIRB unit statistical data. 7

45 Distribution of PD Ratings (Exhibit 1.2) 30% % 10% 0% PDR Interval Source: WCIRB unit statistical data at 3 rd report level. 8

46 Proportion of Claims with Psychiatric Treatment (Exhibit 2.1) 8% 6% 4% 5.2% 5.1% 5.4% 4.6% 4.0% 2.9% 2% 1.8% 1.7% 1.7% 1.6% 1.5% 1.6% 1.5% 1.5% 1.6% 0% 2012Q3 2012Q4 2013Q1 2013Q2 2013Q3 2013Q4 2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 Accident Quarter Source: WCIRB Medical Data Call. Figures are based on all claims with physician services paid within 4 quarters of the accident quarter. 9

47 SB 863 Changes to SJDB SB 863 changes to SJDB Set at maximum of $6,000 for all eligible claims Modified types of expenses that can be reimbursed Payments under $120M RTW fund triggered by reception of SJDB 2016 SB 863 Cost Monitoring Report showed increased frequency of SJDB utilization resulting in 0.1% increase in total costs 10

48 Percentage of Claims with SJDB Costs (Exhibit 3) 30% % with Incurred Benefits - 1st Survey Level % with Incurred Benefits - 2nd Survey Level % with Paid Benefits - 1st Survey Level % with Paid Benefits - 2nd Survey Level 22.7% 24.0% 20% 20.3% 20.0% 16.6% 16.2% 14.7% 14.8% 16.1% 20.2% 10% 11.9% 6.5% 2.7% 7.2% 3.0% 2.2% 2.4% 4.2% 3.3% 3.2% 3.0% 2.5% 0% Accident Year Source: WCIRB Permanent Disability Claim Survey 11

49 Total SJDB Paid Costs (Exhibit 3) $100 Total Paid Cost (in Millions) 20% % of Total Indemnity Benefits Paid $80 15% $64.6 $60 $ % $40 $32.0 $32.3 $36.2 $37.2 $30.0 $20 5% 1.1% 1.1% 1.1% 1.1% 0.9% 1.4% 1.8% $ Calendar Year 0% Source: WCIRB aggregate financial data calls 12

50 SB 863 IMR Process 2016 SB 863 Cost Monitoring Report noted Approx. 44,000 IMRs filed per quarter compared to 13,000 originally projected No significant savings to frictional costs from IMR process No significant reductions in TD duration from IMR process Significant reductions in overall medical severities, largely in part attributable to IMR process and other SB 863 provisions 13

51 Number of IMR Requests by Quarter (Exhibit 4) 80,000 Total IMRs Filed 70,000 60,000 Eligible IMRs 59,983 59,606 58,567 61,142 65,418 65,889 61,327 60,772 64,852 62,411 61,318 61,973 62,773 63,377 51,092 49,928 50,000 42,761 43,036 41,060 41,023 44,287 43,892 43,618 43,480 44,491 44,422 40,000 38,752 30,000 31,950 20,000 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Source: DWC from IMR vendor. 14

52 Temporary Disability Duration (Exhibit 5) 80 Average TD Duration Duration of TD in Weeks at First Survey Level Median TD Duration Accident Year Source: WCIRB Permanent Disability Claim Survey 15

53 SB 863 Changes to Physician Fee Schedule (RBRVS) RBRVS changes to physician fee schedule effective starting in 2014 and phased in over four years 2016 SB 863 Cost Monitoring Report estimated changes in physician fees SY 2014 months) = -5.7% SY 2015 (@18 months) = -4.5% SY 2016 (@6 months) = +1.0% 16

54 Update on RBRVS Trends Previously presented in November 2016, the following slides have been updated to reflect WCIRB Medical Call Data received through the second quarter of The Pathology and Laboratory data that follows the Clinical Laboratory Fee Schedule (CLFS) are not reflected in this RBRVS data, consistent with the quarterly benchmark reports that report Pathology and Laboratory under the HCPCS category. Copy Services Schedule, effective July 1, 2015, is excluded. 17

55 Projected vs. Actual Change in Physician Fees 2013 to 2014 Transactions through 2Q 2017 (42 Months) 20% 10% 15.8% 10.9% Prospective Estimate Actual Change 3.1% 2.5% 0% -10% -4.7% -6.5% -1.3% -1.4% -3.4% -4.8% -6.8% -3.9% -20% -14.6% -30% -40% -33.4% Anesthesia E&M Medicine* Radiology Surgery Special Services & Reports Share of Payments (2013) Total Physician Cost per Fee Schedule Claim 2% 29% 27% 11% 20% 10% 100% * Includes Physical Medicine, Chiropractic and Acupuncture Source: WCIRB Medical Data Call. 18

56 Projected vs. Actual Change in Physician Fees 2014 to 2015 Transactions through 2Q 2017 (30 Months) 20% Prospective Estimate Actual Change 10% 0% 6.1% 5.6% 2.1% 2.7% 1.6% 1.2% -10% -20% -5.4% -13.2% -4.6% -5.6% -14.7% -13.7% -10.9% -3.8% -30% -40% Anesthesia E&M Medicine* Radiology Surgery Special Services & Reports Share of Payments (2014) Total Physician Cost per Fee Schedule Claim 2% 34% 27% 10% 20% 7% 100% * Includes Physical Medicine, Chiropractic and Acupuncture Source: WCIRB Medical Data Call. 19

57 Projected vs. Actual Change in Physician Fees 2015 to 2016 Transactions through 2Q 2017 (18 Months) 20% 10% 0% 6.6% 6.0% 6.1% 9.8% Prospective Estimate Actual Change 1.6% 1.6% 2.2% -10% -20% -5.3% -8.9% -4.2% -3.1% -5.3% -8.7% -12.8% -30% -40% Anesthesia E&M Medicine* Radiology Surgery Special Services & Reports Share of Payments (2015) Total Physician Cost per Fee Schedule Claim 2% 36% 29% 9% 18% 7% 100% * Includes Physical Medicine, Chiropractic and Acupuncture Source: WCIRB Medical Data Call. 20

58 Projected vs. Actual Change in Physician Fees 2016 to 2017 Transactions through 2Q 2017 (6 Months) 20% Prospective Estimate Actual Change 10% 0% -10% -5.9% -5.9% 7.4% 6.5% 6.1% -0.1% -0.6% -4.8% -6.1% 0.9% 1.5% 1.3% -2.6% 2.6% -20% -30% -40% Anesthesia E&M Medicine* Radiology Surgery Special Services & Reports Share of Payments (2016) Total Physician Cost per Fee Schedule Claim 2% 38% 31% 8% 15% 6% 100% * Includes Physical Medicine, Chiropractic and Acupuncture Source: WCIRB Medical Data Call. 21

59 Changes in Average Physician Costs per Claim Over Time Service Year 6 Months 12 Months 18 Months 24 Months 30 Months 36 Months 42 Months % -2.2% -2.9% -3.3% -3.8% -3.8% -3.9% % -2.5% -3.9% -3.8% -3.8% % 0.7% 2.2% % Change in Physician Payments per Fee Schedule Claim for Transactions through Source: WCIRB Medical Data Call 22

60 SB 1160 / AB 1244 Lien Reforms SB 1160 changes related to liens effective starting in 2017 All new liens to be filed with declaration under penalty of perjury (required for outstanding liens by July 1, 2017) Liens can no longer be assigned to a third party Liens from providers indicted for fraud are automatically stayed AB 1244 provides process for consolidating liens from providers convicted of fraud WCIRB prospective estimate included in Amended January 1, 2017 Filing assumed 10% reduction in lien filings (0.6% decrease in total costs) 23

61 Quarterly Number of Liens Filed (Exhibit 7.1) 150 In Thousands Los Angeles Area Rest of State Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Source: EAMS Liens Data Calendar Quarter 24

62 Monthly Number of Liens Filed (Exhibit 7.2) 60 In Thousands Calendar Year and Month Source: EAMS Liens Data 25

63 Distribution of Liens Filed by Type 100% 80% 74% 82% 85% 86% 85% * 60% 40% 20% 0% 7% 1% 2% 0% 0% 0% 1% 0% 0% 0% 17% 16% 14% 13% Medical Med-Legal Interpreter Other** * Based on the first 3 quarters. ** Other includes Attorney Fees, Family Support, Living Expense, PFL, Transport, Wage Replacement, Copy Service Source: EAMS Liens Data 15% 26

64 Lien Payments as a % Total Medical Services Payments (Exhibit 8) 10% 8% 8.9% 8.9% 8.4% 7.3% 6% 4% 2% 0% (6 Months) Calendar Year Source: WCIRB Medical Data Call 27

65 SB 1160 / AB 1244 Lien Reforms Summary of New Lien Filings Lien filings in first three quarters of 2017 approximately 40% lower than third quarter 2016 level (compared to 10% projected) Initial post-sb 863 lien filings were also lower than projected but then increased significantly Monthly lien filings in 2017 show no signs of upward creep Proportion of liens by type or region consistent with pre-reform 28

66 SB 1160 / AB 1244 Lien Reforms Outstanding Liens Lien declaration required on all outstanding liens by July 1, 2017 Only includes liens subject to the SB 863 lien filing fee Approximately 292,000 liens with no declarations filed dismissed by DWC in August Potential significant savings to medical and LAE costs from dismissed liens and impact on development and settlement patterns However, some of these liens may have already been settled or incurred significant LAE Staff has begun mining dismissed lien information and linking to other WCIRB data where available 29

67 Lien Payments as a % Total Medical Services Payments for Calendar Year 2016 (Exhibit 8) 30% 20% 17.8% 21.6% 22.2% 22.8% 21.2% 19.9% 16.3% 15.8% 10% 7.6% 10.2% 10.7% 9.0% 6.9% 0% 0.0% 1.2% Development Age in Years Source: WCIRB Medical Data Call 30

68 Linking DWC Liens to Other Data Dismissed liens include provider name and filing date 271,000 liens (93%) linked to original DWC lien filing data that includes accident date Provider and accident date info linked to MDC data to get policy/claim information and then to USR Approx. 3,100 USR claims with dismissed liens and 8,600 claims with other non-dismissed liens identified Approx. 1,000 dismissed liens identified with MDC payments while 2,800 other non-dismissed liens were identified Matching logic still being refined Such as more complete provider matching and dealing with providers with multiple services/liens 31

69 DWC Dismissed Lien Summary (Exhibit 9) 100% 100% 92% 80% 60% 60% 40% 37% 32% 20% 11% 21% 8% 12% 20% 8% 0% Pre Medical LA Basin Other CA Accident Year Filing Year Lien Type Region Source: 271,000 DWC dismissed liens linked to original lien filing 32

70 USR Claims Involving Liens (Preliminary) (Exhibit 10) Claims with Non-Dismissed Liens 100% Claims with Dismissed Liens $100,000 $95,502 $91,271 80% 81% 80% $80,000 60% $60,000 $54,002 $51,891 40% 39% 37% $40,000 20% 17% 16% $20,000 $17,833 $18,655 0% Open PP Claim CT Claim $0 Avg Indemnity Incurred Avg Medical Incurred Avg ALAE Paid Source: 12,000 DWC liens linked to claims from WCIRB unit statistical data. Comparisons are controlled for a common average maturity. 33

71 Average Lien Costs $20,000 Non-Dismissed Liens "Dismissed" Liens $15,000 $12,341 $10,000 $5,000 $8,562 $6,671 $8,058 $5,233 $5,832 24% 26% $1,276 $1,523 $0 Avg DWC Lien Demand - All Liens Avg DWC Lien Demand - MDC Linked Liens Avg MDC Billed Amount for Linked Liens Avg MDC Paid Amount for Linked Liens Source: DWC lien filings and 4,000 DWC liens linked to lien payments from WCIRB Medical Data Call data 34

72 SB 1160 / AB 1244 Lien Reforms Summary of Dismissed Liens Based on preliminary matching rates to MDC lien payments, between 25% to 40% of dismissed liens may have already been settled prior to dismissal Other dismissed liens still have a potential significant impact on claim development and settlement patterns and LAE Characteristics of claims with dismissed or non-dismissed liens are comparable Staff to continue to review dismissed lien data Any potential adjustment to loss development projections to be reviewed with Committee in first quarter of

73 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 Review of On-leveling for Wage Level Changes WCIRB Actuarial Committee Meeting December 6,

74 On-leveling for Wage Changes Background Changes in wage levels are on-leveled as part of the aggregate ratemaking process Exposure in premium is on-leveled to year of projected PP rates Wage inflation impact on indemnity benefits also on-leveled Current process uses BLS historical wage data and UCLA wage forecasts which is based on all-employee average wages Prior studies have shown that UCLA forecasts are more accurate than trending historical wages forward Committee has expressed concerns with current approach All-employee average wages may not fully reflect insured exposure Concerns over volatility in UCLA projections in recent years 4

75 Alternative Wage Series Reviewed Unadjusted UCLA wage series (current selection) Updated quarterly and based on average wages Based on BLS historical wage data and UCLA forecast Adjusted UCLA wage series Adjusted UCLA forecast to be more responsive to changes in emerging year OES wage series Updated annually and based on median wages which may better represent covered exposure Available at occupation level (some adjustments to class level required) No forecast provided in the series 5

76 Review of Wage Series On-Leveling Evaluated adjusted and unadjusted UCLA wage series compared to full maturity wage change (12 mo. after end of year) Retrospectively evaluated the UCLA wage series and the OES wage series on-level factors Compared on-leveled projected loss ratios to emerged loss ratios at current wage level Retrospective testing methodology Projections for AYs 2007 to 2016 analyzed Loss assumptions and trending methodology consistent with Amended January 1, 2018 Filing 6

77 Retrospective Tests Results Absolute Error in Indemnity On-Level from Actual (Exhibit 3)* % % UCLA Wage Series Absolute Error Average Error: 0.67% OES Wage Series Absolute Error Average Error: 0.69% Accident Year *Projections and assumptions based on Amended January 1, 2018 Advisory Pure Premium Rate Filing 7

78 Retrospective Tests Results Absolute Error in Medical On-Level from Actual (Exhibit 3)* 4 % UCLA Wage Series Absolute Error Average Error: 0.76% % OES Wage Series Absolute Error Average Error: 1.17% Accident Year *Projections and assumptions based on Amended January 1, 2018 Advisory Pure Premium Rate Filing 8

79 Retrospective Tests Results Medical Projected On-Leveled Loss Ratios (Exhibit 2) 0.49 Medical Loss Ratios Accident Year LR using Actual AY Wage Level UCLA On-Level Proj OES On-Level Proj 9

80 Retrospective Tests Results Absolute Error in Adj and Unadj UCLA Wage Change (Exhibit 4) % Unadjusted UCLA Wage Series Absolute Error Average Error: 1.00% % 3.5 Adjusted UCLA Wage Series Absolute Error Average Error: 1.20% Year

81 Conclusions of the Wage On-level Review OES wage series performs similar or worse than the selected method Adjusting the UCLA projections to be more responsive to recent changes generally does not improve the accuracy of the forecast Staff does not recommend any changes to the current wage series at this time 11

82 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 Item AC New Drug Formulary Assembly Bill No WCIRB Actuarial Committee December 6, 2017 April 3, 2017

83 Summary of Proposed Formulary Exempt drugs Non-Exempt drugs Not listed drugs Special fill policy Perioperative fill policy Off-label use Generic drug preference Physician dispensing not subject to prospective utilization review if use is consistent with MTUS subject to prospective utilization review, all opioids and compounds fall under this category subject to prospective utilization review allows for non-exempt drugs to be prescribed at the single initial visit within 7 days of injury allows for non-exempt drugs for post-surgery care (4/14 days prior, 4/14 days after surgery) not subject to prospective review if an exempt drug and follows MTUS treatment guidelines physicians must obtain prospective authorization and document the need for brand name drug where a less costly generic equivalent exists subject to prospective utilization review except on a one-time basis for exempt drugs

84 Summary Information on Formulary Drugs 82 Exempt Drug names 193 Non-Exempt Drug names 15 Special Fill Drug names 14 Peri-Op Drug names Drug Formulary list available at We mapped the formulary drug names to 190,282 National Drug Codes(NDCs).

85 Estimated Cost Impact of AB 1124 The DIR has provided an Economic Impact Statement reflecting a decreased CA workers compensation spending on prescription drugs by an estimated $23M* Impacts include the following assumptions: Total number of prescriptions will be reduced in four categories Brand-name drugs where equivalent generic drugs available Non-exempt drugs in therapeutic classes where a exempt drug is available Physician-dispensed drugs where pharmacy-dispensed drugs are available Bulk ingredients used to make compound drugs 20% of physician-dispensed prescriptions will not be written and another 40% of physician-dispensed volume will transition to pharmacy dispensing *Source: STD 399 State of California Department of Finance, Economic and Fiscal Impact Statement (Regulations and Orders) Economic Impact Statement by the Department of Industrial Relations for the Medical Treatment Utilization Schedule Drug Formulary signed March 2, 2017

86 WCIRB process After formulary adoption, the WCIRB will complete evaluating the cost using WCIRB s MDC data sources and other information: Identifying the drugs by NDC codes Identifying and validating the site of service with reported taxonomy Extract the data by therapeutic class Map to Formulary drug table Review UR & IMR costs impacted Potential Issues No price controls in schedule Impact on future prescribing pattern uncertain Sharp drop prescription drugs since 2012 in 2016, pharmaceutical costs only 8% of total medical

87 WCIRB Actuarial Committee Meeting of June 16, 2017 % Change in Pharmaceutical per Claim (Pharmaceutical Costs in 2016: 8% of Total Medical) Change in Average Paid per Transaction 10% 0% -10% -20% -30% 5% 4% -5% -12% -17% -23% Change in Average Number of Transactions per Claim -5% -15% -25% -35% -45% -55% -6% -19% -20% -10% -11% -52% Change in Average Paid per Claim -5% 5% -15% -25% -35% -45% -55% -65% -2% -16% -24% -21% -26% -63% H1 2016H2 Cumulative Service Period 7 Downward cost impacts from the CA Medi-Cal Fee methodology change (Federal Upper limit/awp), reduced physician prescribing (including opioids) and increased PBM transactions, and impacts from IMR and fraud indictments. Source: WCIRB medical transaction data collected beginning in the third quarter of

88 WCIRB Methodology Analyzing Spending by Statutory Rules Exempt (82) Non-Exempt (193) First Fill (15) Peri-op (14) 1. Baseline and trend drug data Within 7 days of injury Within 8-30 days of injury 31+ days after injury 2. Analyze brand vs. generic 3. Review UR & IMR costs impacted Unlisted (includes combination drugs) 4. Trend of Pharmacy and Physician Dispensing 5. Compound Dispensing

89 Preliminary Summary of Current Formulary Accident Dates July 1, June 30, 2017* Share of Paid Medical by Formulary Category and Service Date Relative to Date of Injury Accident Year July 1, 2016 to June 30, 2017 as of June 30, 2017 Within 7 days of DOI 31+ Days after DOI Within 8-30 days of DOI Not Perioperative Perioperative Subtotals by Category Exempt 20.2% 8.2% 19.2% 47.6% Non-Exempt - Subject to UR xxxxxxxxxxxx - Not Subject 7.8% 5.2% 17.8% 0.1% 30.9% 0.4% 0.1% 0.6% Not listed - Subject to UR 11.0% 2.0% 7.9% 20.9% Subtotals by Days of DOI 39.4% 15.6% 45.0% 100.0% Not Subject to UR 48.2% Subject to UR 51.8% Source: WCIRB Medical Call Data as of December 4, 2017

90 Preliminary Summary of Current Formulary Categorization* (All Accident Dates) 70% % Paid Drug Costs by Formulary Criteria 60% 50% 56.0% 53.4% 40% 30% 20% 23.1% 23.7% 20.9% 22.8% 10% 0% Service Year Exempt Non-Exempt Not Assigned Source: WCIRB Medical Call Data MDC as is date is December 4. Special Fill and Peri-op exceptions (<2% of spend) are included in the Non-exempt figures.

91 Potential Impact on Prescribing Patterns Physician Dispensed Drugs WCIRB 2016 report showed the share of physician dispensed drug payments down to 33% in 2015 from 50%+ in 2012 (drops in all categories) Opioids Shares down significantly in last four years Compound Drugs WCIRB 2016 report showed sharp drop in physician dispensed compound drugs since 2012

92 Patterns of Drug Payments to Physicians and Pharmacies Physician Share of Drug Payments Pharmacy Share of Drug Payments 70% 60% 50% % of Drug Payments 40% 30% 20% 10% 0% 2012H2 2013H1 2013H2 2014H1 2014H2 2015H1 2015H2 Service/Transaction Half Source: WCIRB Medical Call Data

93 Opioid Trends by Service Period 60% Drugs & Analgesic Opioid Claim Count Penetration by Service Period 50% 52.0% 51.2% 48.0% 40% 39.7% 35.0% 30% 28.9% 28.4% 25.8% 20% 19.6% 16.0% 10% 0% 2012H Service Period Opioid Claims/Drug Transaction Claims Opioid Claims/All Claims Source: WCIRB Medical Call Data 13

94 Patterns of Compound Payments to Physicians and Pharmacies 10% 9% 9.19% 8.98% 9.22% 8.89% Pharmacies Physicians 8.44% 8% 7.93% 7.85% Share of Total Drug Payments 7% 6% 5% 4% 3% 6.61% 4.43% 3.97% 4.06% 7.16% 2.82% 2% 2.34% 1% 0% 2012H2 2013H1 2013H2 2014H1 2014H2 2015H1 2015H2 Service/Transaction Half Source: WCIRB Medical Call Data