Southern Association of Workers’ Compensation Administrators Convention 2007 A Texas Perspective Lisa Corless Texas Mutual Insurance Company

Agenda  Introduction  Texas Workers’ Comp System  The Case for Change  House Bill 7: Changes the System  Health Care Networks  Other Texas initiative; eBilling  What Does the Future Hold?  Questions

About Texas Mutual Texas Mutual has been serving the state of Texas since 1991 after the Texas Legislature first chartered the Texas Workers’ Compensation Fund. In 2001, the Legislature redesigned the company’s charter and the company was renamed Texas Mutual Insurance Company. Texas Mutual is the largest workers’ compensation underwriter in Texas; underwrites approximately 28% of the Texas market.

Top 10 Workers’ Compensation Carriers in 2006 RankCompany2005 ($000)2006 ($000)% +/- 1State Comp Ins Fund of CA $5,949,840$3,453, Liberty Mutual Ins Co$2,343,138$2,604, National Union Fire Ins.$2,365,243$2,465, American Home Assurance $2,240,755$2,335, Hartford Fire Ins$1,130,890$1,009, Continental Casualty Co$963,753$989, Zenith Ins$1,074,193$869, Zurich American Ins$875,329$854, Hartford Accident$890,815$795, Texas Mutual Ins Co$696,850$740, Source: Best’s Statement File Supplement – Insurance Expense Exhibit (IEE) – P/C 2006

Texas Employment Factoids Texas population:23,507,783 1 # of Texas employers:426,846 2 # of Texas employees:9,932,484 2 Total Texas WC premium: $2,726,560,362 3 Texas injury rate per 100 employees: – Source: United States Census Bureau (July 2006 estimate). 2 – Source: Texas Workforce Commission Quarterly Census of Employment and Wages, 4 th quarter Non- government employers with Texas UI Coverage. 3 – Source: Texas Department of Insurance Quarterly Legislative Report on Market Conditions, 4 th Quarter – Source: Texas Department of Insurance, Division of Workers’ Compensation (2005 Nonfatal Injury Rate Data).

Texas Workers’ Comp System  Only state in nation without mandatory comp  Employers have the choice; Insured or “Non-subscriber”  Who cannot non-subscribe?  Public employers  Certain entities licensed or regulated by TxDOT  Construction companies – public project  Approximately 107,000 Texas businesses are non-subscribers 1 1 – Source: TXANs website

Percentage of Texas Employers that are Non-subscribers, Source: Survey of Employer Participation in the Texas Workers’ Compensation System, 1993 and 1995 estimates from the Texas Workers’ Compensation Research Center and the Public Policy Research Institute (PPRI) at Texas A&M University; 1996 and 2001 estimates from the Research and Oversight Council on Workers’ Compensation and PPRI; and 2004 and 2006 estimates from the Texas Department of Insurance Workers’ Compensation Research and Evaluation Group and PPRI.

The Insured Market WCRI The realization of the need for Texas Workers’ Compensation reform

WCRI 1 Pre-Reform Performance Baselines for Texas Workers’ Compensation Research Institute, Cambridge, Massachusetts 2 Average total cost less average benefit delivery expense 3 Average benefit payment less average indemnity benefit

WCRI 1 Pre-Reform Performance Baselines for Texas 1 Workers’ Compensation Research Institute, Cambridge, Massachusetts 2 Average total cost less average benefit delivery expense 3 Average benefit payment less average indemnity benefit 2 3

WCRI 1 research Texas Highest in Payments per Claim 1 Workers’ Compensation Research Institute, Cambridge, Massachusetts

WCRI Research (con’t.)  Texas and California versus Massachusetts and Pennsylvania  Texas and California results  Recovery rates – Poorer  Return to work – Poorer  Access – Similar or less  Satisfaction – Similar or less

Texas Comp Reform Necessary  Anecdotal information from –Injured workers –Physicians –Carriers  WCRI data –Statistical information Costs Injured worker satisfaction  “Broken” Workers’ Compensation system

Legislative Session 2005 Enacted House Bill 7 Into Law

House Bill 7 System Goals  Improve return to work outcomes for injured workers Enhance access and quality of medical care Control workers’ compensation costs Create a more efficient system

House Bill 7 Overview  Introduced Health Care Networks  Treating doctors to use treatment and disability guidelines  Emphasis on return to work  Appropriate  Stay at work

House Bill 7 Overview (con’t)  Performance Based Oversight  Insurance Carrier Report cards  Carriers earn designations  High / Average / Low Performer  First Report card due August/September 2007  Published on regulator website

Health Care Networks  Carriers may establish or contract with health care networks  Employer may elect network  Network selects who can serve as treating doctors  Injured worker selects treating doctor from network  TDI must certify  Responsibilities

Certified Networks  27 Networks Certified  Smallest: 1 county  Largest: 208 counties

Health Care Networks  First Network Certified late March 2006  Texas Mutual philosophy  Most Carriers Adopting “Wait and See Attitude”  Learning Curve for System  Network Report Cards  August/September 2007  Preliminary thoughts on Network efficacy

Other Texas Initiatives eBilling  Texas will become the first state to mandate carrier requirement to accept eBilling from medical providers  Universal format 837  Effective January 1, 2008  eBilling Challenges –Workers’ Comp is different from Health Care  EFT next!

What does the future hold?  Impact of Networks –Return-to-Work Outcomes –Total Claim Costs and System Satisfaction  Performance Based Oversight  Increased competition for business