It’s May, and you know what that means. It means NCCI has held its Annual Issues Symposium, and the State of the Line Report, presented by Chief Actuary Kathy Antonello.
But this year I am going to do something a little different. I am going to compare the data presented this year with some of the data from last year and the year prior, so that the reader can see how much change there has been year over year from the 2017 and 2018 reports. Last year’s data and the year before was presented in my post, “Slight Increase in Average Medical Costs for Lost-Time Claims, Part 2.”
First up, this year’s WC Average Medical Lost-Time Claim Severity in Chart 1.
As you can see, there has been another slight increase in the lost-time claim severity from the 2016 to 2017 preliminary data. In 2016, the average medical lost-time claim severity was $28,800 and the preliminary 2017 severity was $29,900, an increase of nearly $1,000.
The key takeaway here is that NCCI estimates that the AY 2017 average medical lost-time claim severity is 4% higher than the corresponding AY 2016 value.
Looking back at the data from last year’s report, we can compare the preliminary 2016 data with the actual 2016 data reported above. Chart 2 exhibits last year’s data.
Source: NCCI’s Financial Call Data; p Preliminary based on data valued as of 12/31/2016.
In chart 2, the preliminary medical lost-time claim severity was $29,100 and represented a 5.0% change from 2015. In 2015, it was $27,700 and saw a -1.4% change from the prior year.
This is borne out in the next chart, Chart 3, where the 2015 average medical lost-time claim severity was estimated at $28,500, or a 1.0% change from 2014.
Next, we look at the cumulative change in medical lost-time claim severity (1997-2017p), as highlighted in chart 4.
In this chart, the cumulative change in medical lost-time claim severity is contrasted with the cumulative change in the Personal Health Care Chain-Weighted Price Index (1997-2017p). The PHC is a proxy for medical care price inflation that responds to changes in the blend of different medical services over time.
From the chart, the cumulative change in medical lost-time claim severity has strongly outpaced the change in the PHC index in that same period, indicating that while the PHC index is nearly flat, the medical lost-time claim severity is rising and will continue to do so.
According to NCCI, the medical lost-time claim costs have risen faster, +175% , than the PHC index of +61%, over the period from 1997-2017, with most of the gap occurring in the years before the recession.
However, looking at the data from last year’s report, as shown in chart 5, the cumulative change in medical lost-time claim severity was much higher, as estimated by NCCI, which was +227%.
Sources: NCCI’s Financial Call Data; Centers for Medicare & Medicaid Services ; p Preliminary based on data valued as of 12/31/2016.
The next chart, chart 6, compares the relative growth rates between medical severity and price inflation.
On the left-hand side, the medical lost-time claim severity grew approximately 4.5% per year faster than the medical care prices for the same period.
On the right-hand side however, the change in the medical lost-time claim severity and the medical care price tracked one another in the same ten-year period. Yet, there is a slight rise in the medical lost-time claim severity after 2015 continuing into 2017.
The key takeaways as NCCI reported were that much of the gap between the cumulative changes in medical lost-time claim severity and the PHC index since 1997 arose from the years prior to 2007. And that both the severity and care prices have grown at approximately the same rate, as indicated above.
Lastly, the next chart, chart 7, indicates the average annual change from 2012 to 2016 for all NCCI states. Note: all states in grey are either monopolistic states or are intrastate-rated states that do not report data to NCCI.
The state with the highest average annual change was Nevada, and the states with the lowest average annual change, were Maine, Massachusetts, North Carolina, Oregon, and Rhode Island.
The key takeaways here are that the average annual change in medical lost-time claim severity was +2.3% from the four years between 2012 and 2016. The increase in Nevada, NCCI stated, was due to a very large claim that occurred in 2016. The decrease in North Carolina was due to a combination of large claim activity in 2012 and a change in the medical fee schedule in 2013 and 2015.
But it is apparent that most states experienced a change at, or below 10% from 2012 to 2016. And if we are to believe that claim frequency is decreasing, then we must ask ourselves, why is the medical lost-time claim severity rising, as seen in chart 1, one hundred dollars short of $30,000.
One answer we have already examined is the cumulative change in medical lost-time claim severity from 1997 to 2017, although preliminary as of this week’s report.
However, what is not shown is what lies behind those numbers, i.e., what is happening in each claim to cause the severity to rise, or not rise. There is no indication, as there never is, as to what amount of the rise is due to the cost of surgery or to other claim factors such as hospital bills, ancillary services such as medical equipment, anesthesia services, any testing performed, etc. In short, we don’t know if what is causing health care costs generally to rise also is affecting the medical lost-time claim severity.
As I have stated before in this blog, workers’ compensation must look to other alternatives to help bring down the medical lost-time claim severity. This cannot be achieved by looking between all three coasts. It must include looking at less expensive, but equally advanced medical care elsewhere. Otherwise, the gap will only get wider over time.