RISING MEDICAL COSTS, SLOW INVESTMENT RETURNS CHALLENGE WORKERS’ COMP

Skyrocketing medical costs are threatening to supersede gains in the workers’ compensation line’s latest calendar year statistics, according to an insider at NCCI Holdings Inc.

“Rising medical costs are an overriding theme — they continue to increase at a rate above inflation,” said Barry Lipton, a senior actuary and practice leader with NCCI.

Medical costs account for more than half of all losses for NCCI states in 2006, Lipton said. “That’s the bad news.”

NCCI reported that in recent years, workers’ compensation medical claims severities have been increasing at a faster rate than would be expected based on medical inflation alone. There has been a shift to relatively more severe injuries, the report stated.

According to a January report titled “Measuring the Factors Driving Medical Severity: Price, Utilization, Mix” the key drivers — accounting for approximately a 35 percent increase in medical severities — include a markedly higher number of treatments within each diagnosis and a different mix of treatments across service categories. For example, there might be a shift from diagnostic radiology to complex diagnostic testing or from complex surgery to physical therapy.

Lipton also cited investment pitfalls as a concern for insurers.

“Returns are lower. Stock market gains are not what they used to be,” he said. “No one is making 20 percent on their investments any more. This may cause reserve deficiencies for future payments on claims received.”

While medical costs and investments remain concerns, the claims picture continues to improve.

“The good news is that frequency of claims is going down in all states,” Lipton pointed out. “Frequency has declined in all but two of the past 16 years. We think it’s due to safer workplaces — not so much about safety programs.”