1.  2006 National Council on Compensation Insurance, Inc. All rights Reserved Workers Compensation and Group Health Presented by John Robertson, FCAS, MAAA Casualty Actuaries of the Southeast Meeting April 11, 2006

2. 2 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Workers Compensation (WC) medical costs per claim grew 9% to 12% per year over the last several years WC does control prices for non-hospital medical services through fee schedules in most states But medical costs can be high even with price controls due to overutilization Utilization controls are new to WC, but have been in place in Group Health (GH) for many years How do WC medical costs compare to those in GH? Medical Costs

3. 3 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Workers Compensation Medical Cost Trends

4. 4 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved 1991-2004: Based on data through 12/31/2004, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies Annual Change 1991–1995:+3.9% Annual Change 1996–2003:+9.2% WC Medical Claim Cost Trends Remain High in 2004 Lost–Time Claims Medical Claim Cost (000s) Accident Year

5. 5 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Workers Compensation Medical Severity Has Been Growing Much Faster Than the Medical CPI Lost–Time Claims Percent Change Medical severity 1995-2004: Based on data through 12/31/2004, developed to ultimate Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies Source: Calendar year medical Consumer Price Index (CPI), Economy.com; accident year medical severity, NCCI Year

6. 6 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Workers Compensation Medical Losses Are More Than Half of Total Losses All Claims—NCCI States 1984 Medical Indemnity 1994 Indemnity Medical 2004 Indemnity Medical Based on data through 12/31/2004, developed to ultimate Based on the states where NCCI provides ratemaking services Excludes the effects of deductible policies

7. 7 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Cost, Price, and Utilization

8. 8 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Price Versus Cost of Medical Services Cost = Price x Utilization Utilization = Quantity adjusted for Quality/Mix Cost and price are usually but not always correlated Utilization patterns are the difference

9. 9 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Prices Per Service

10. 10 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Prices for Individual Medical Services Excluding Hospitals Prices paid per service for WC are similar to those paid for GH States with a WC medical fee schedule showed a WC price level from 8% to 31% below that of GH States with no applicable fee schedule showed a WC price level 16% to 19% above that of GH

11. 11 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved States Studied Comparisons are based on workers compensation [WC] and group health [GH] data for 1997 to 2001 Studied five states: Florida, Georgia, Illinois, Kentucky, Tennessee States selected to represent some variety of physician cost controls in the workers compensation system

12. 12 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Comparison of State Controls 1 WCRI Managed Care & Medical Cost Cont Inventory 2001-2002, Table 3.8 AWP: Average wholesale price for a prescription drug DAW: Dispense as writtenDRG: Diagnosis Related Group RBVRS: Resource based relative value scaleUCR: Usual, customary and reasonable State Basis of physician fee schedule Fees relative to Medicare Initial choice of physician Choice from provider list? Basis of prescription drug fee schedule Basis of hospital fee schedule 1 Authorized use of managed care? IllinoisNoneNAEmployeeNoNA No TennesseeNoneNAEmployeeYesNA No FloridaRBRVS83%EmployerNoAWP + $4.18 Per procedure Yes GeorgiaUCR146%EmployeeYes AWPx1.2 + $4.00 Per DRGYes KentuckyRBRVS128%EmployeeNo When DAW AWP + $5.00 Cost basedYes

13. 13 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC Prices Are Lower Than GH in Fee Schedule States Median Reimbursement per Service Excluding Hospitals Illinois and Tennessee did not have fee schedules in timeframe of study

14. 14 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Network Price Discounts Bigger if There Is No Fee Schedule Median Reimbursement per Service Excluding Hospitals Illinois and Tennessee did not have fee schedules in timeframe of study

15. 15 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Injuries Studied Price per service comparisons based on a market basket of professional services for five injuries – Carpal Tunnel Syndrome – Inguinal Hernia – Back Strain or Sprain – Open Wound of Fingers – Contusion of Lower Limb Injuries selected to include – Hard and Soft Tissue Injuries – Cumulative and Traumatic Injuries

16. 16 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Treatments Associated With Carpal Tunnel Cases CPT Code* Description of procedure 0181Anesthesia for lower arm surgery 6472Carpal tunnel surgery 7311Radiologic exam (x-ray) of the wrist 9586Needle electromyography, one limb 9590Motor nerve conduction test 9700Physical or occupational therapy evaluation 9701Hot or cold pack therapy 9702Microwave therapy 9703Physical therapy treatment 9711Therapeutic exercises 9712Electrical stimulation therapy 9714Extended physiotherapy 9725Manual therapy 9726Regional manipulation therapy 9753Kinetic therapy 9775Muscle testing with exercise 9907Special supplies 9920Office visit, new patient 9921Office visit, established patient CPT: Current procedural terminology * Truncated to four digits

17. 17 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Strong Correlation Between WC and GH for Individual Treatments

18. 18 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Costs of Treating Injuries

19. 19 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Overall Cost of Treating an Injury WC costs more than GH to treat similar injuries, mostly because of differences in by utilization WC has more intense and costly treatments earlier on than does GH Cost differences are smaller than average for acute injuries and trauma-related conditions like fractures or sprains Cost differences are greater for injuries subject to surgery and for chronic or pain-related injuries GH has a greater proportion of low cost treatments than does WC

20. 20 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Medical Conditions Included in Cost Analysis Cost analysis is based on treatment of twelve conditions InH -Inguinal hernia Surgery Option HID -Herniated intervertebral disc CTS -Carpal tunnel syndrome BRS -Bursitis Chronic & Pain Related OSD -Other spinal and back disorders SSC -Injury: spine and spinal cord FSA -Fracture or sprain: ankle Acute & Trauma Related FDS -Fracture, dislocation, or sprain: humerus (head) or shoulder FDH -Fracture, dislocation, or sprain: wrist or hand or fingers LKL -Injury, knee, ligamentous ILE -Injury, open wound, or blunt trauma: lower extremity IUE -Injury, open wound, or blunt trauma: upper extremity

21. 21 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Cost Analysis is Based on Super-Episodes GH does not have a concept similar to “claim” in WC Sophisticated episode groupers have evolved for analyzing GH medical data, including Medstat’s Episodes Grouper™ (Grouper) As Grouper builds episodes, each is put into a “major diagnostic category” (MDC)

22. 22 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Grouper splits WC claims into several episodes Noticed that many WC injuries have a “core episode,” i.e., an episode that occurs exactly once and that is characteristic to the WC injury A “Super-Episode” is a combination of a unique core episode with other related treatment episodes within a claim for WC and Patient ID for GH Identified 12 core episode MDCs For each core episode, developed a customized list of related treatment MDC codes Super-Episodes

23. 23 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Assembling Super-Episodes Core Outliers: Remove WC claims/GH patients with any core episode for which paid is greater than the 95th percentile or less than the 5th percentile Time Window: Include only episodes within defined time periods relative to the core episode Related Care: Include only episodes with MDC in the related treatment list Related to Total: For WC, include only WC claims for which core plus related care accounts for 90% of all care over the time window Core to Related: Include only super-episodes for which the ratio of core episode paid to all related paid exceeds the 5th percentile for that ratio among the included WC claims

24. 24 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Core Episode Related Episodes Time Window Super-Episode :

25. 25 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Super-Episodes

26. 26 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Methodology Most analysis from regression models Controlled for age, gender, time (inflation) Generally based on costs of treatments provided in first three months

27. 27 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Medical costs correlate with age Do costs also correlate with gender? Before we compare WC and GH costs, we need to adjust for cost differences due to differing demographics Demographics Play a Role

28. 28 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Costs Increase with Age Percent Based on WC and GH Combined Five-State Average

29. 29 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC Claimants Are More Likely To Be Male Five-State Average

30. 30 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Based on WC and GH Combined Five-State Average Costs by Gender Are Less Straightforward Female Cost Relativity by Medical Condition Male = 100% Percent

31. 31 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Nearly Half of the GH Cases Are Below $500

32. 32 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved After Removing Cases Under $500 WC Still Has Higher Costs

33. 33 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC/GH Cost Relativities by Condition All the 12 medical conditions show a similar pattern of relative costs across the 5 states Inguinal hernia (INH), degenerative disk disease (HID), and carpal tunnel (CTS) have cost relativities that are both the largest and the most variable by state of the 12 conditions studied Fractures, cuts, and knee injuries (FSA, FDS, FDH, ILR, IUE, and IKL) exhibit the lowest and the least variable cost relativities by state

34. 34 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC/GH Cost Comparison by Injury Group Within Three Months of Injury GH = 100% Percent Five-State Average

35. 35 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC/GH Cost Comparison by State All the states show a similar pattern of relative costs across the 12 medical conditions Illinois and Tennessee, the two states without workers compensation medical fee schedules, have the highest relativities for workers compensation above group health Georgia and Kentucky have somewhat more moderate (but still high) relativities

36. 36 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC/GH Cost Comparison by State Florida workers compensation costs are moderately higher than group health One would expect Florida to have a lower cost relative to group health based on it’s price advantage for physician services Recent legislation in Florida, effective last year, established a hospital fee schedule (SB 50A)

37. 37 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved WC Costs Are Consistently Greater Than GH Costs Within Three Months of Injury GH = 100% Percent

38. 38 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Percent WC/GH Cost Comparison by State and Injury Group Within Three Months of Injury GH = 100%

39. 39 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Cost Comparisons Show Small Decline as Time Window Is Increased

40. 40 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Prices paid by WC and GH for medical services are roughly comparable WC costs are higher than GH; differences are due to utilization WC costs for injuries where surgery is a likely option and chronic or pain-related injuries are significantly higher than those for GH The cost difference between WC and GH is lower in states with fee schedules than in states without Summary

41. 41 of 41  2006 National Council on Compensation Insurance, Inc. All Rights Reserved Questions?