7 Workers’ Comp issues to watch

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2. The growing use of—and cost for—physical therapy causes challenges. Fee schedules for physical therapy have increased over the past two years in nine states that have the greatest use of PT in WC claims. California increased its fee schedule for all physical therapy billing codes by 5% to 6% in March, while New Jersey upped its schedule by 3.6% last fall. Managing the utilization and cost of physical therapy is becoming a key issue, so much so that clients, prospects and brokers are asking TPAs more questions about their strategies in this area.

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3. The variability of WC costs and treatments among states threatens the  market. There is no reason why the cost for treating the same type of work-related injury should differ significantly from state to state—but it does. The median medical benefit per Workers' Comp claim by state is $26,124, according to NCCI data. California and Delaware have medical benefits per claim over 50% greater than the median, while Massachusetts and Rhode Island are well below half the median.

There is good news, however. Medical treatment guidelines and drug formularies continue to be developed in states across the country. As experts with a shared interest in cost-effectively delivering quality medical outcomes for injured workers, all of us must understand this issue, and translate that understanding into action by becoming involved in efforts to improve workers' compensation systems and develop treatment guidelines and formularies.   

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4. The fourth issue threatening the WC market is pharmacy trends, especially at the provider level. For example, some treating physicians appear to be trying to avoid fee schedules by dispensing prescriptions, compounding medications or prescribing and filling common medications at uncommon strengths.

At the macro level, prescription spending continues to grow. In 2014, Americans spent $392 billion on prescriptions, up 6%. In fact, per-capita pharmacy spending in the U.S. is twice as high as the average of all other developed countries. Contributing to this, big pharma spent $24 billion on advertising to doctors in 2014, and $4 billion advertising directly to consumers—and this is impacting the WC system. Stories of claimants asking treating physicians for specific, brand-name medications are all too common.

Next page: Three demographic challenges to the Workers' Compensation market

DEMOGRAPHIC CHALLENGES

1. The birth of the "sharing" or "labor on demand" economy, driven by technology's ability to enable users to develop a unique work-life balance, threatens the market.

In these models, there is neither a formal workplace nor defined hours of employment, as many of the sharing economy's facilitators disclaim having employees, insisting they are "independent contractors." While ongoing court actions in California and other states may undo Uber's business model, the on-demand economy could impact the WC market by significantly decreasing the number of employees in formal relationships with companies, and changing the definition of a workplace injury.

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2. The aging workforce is causing an impact in WC. Roughly 20% of the workforce is aged 65 or older, double the rate in the 1990s. This group typically has fewer, but more expensive, workplace accidents and injuries; their experience tends to make them safer, while their age often requires longer treatment when they do become injured. In fact, the number of days away from work for employees age 55 and older is nearly double that for other employees, according to the federal Bureau of Labor Statistics.

The impact of the prolonged low investment environment on retirement savings is often cited as one reason older individuals stay in the workforce. It's ironic that the same low bond yields that keep older employees at work also contribute to greater WC claim costs, and pressure WC pricing, in part by causing carriers to focus on underwriting profitability.

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3. Finally, obesity rates are a driver of WC costs. Today, all 50 states have adult obesity rates of 20% or more. In fact, 35% of Americans are currently obese, and that figure could reach 50% by 2030.

This directly impacts WC costs, which are 5.9 times higher for obese employees—and driven by longer treatment times, more co-morbid conditions (such as diabetes and hypertension) and more expensive workplace accommodations. A recent CWCI study found that obese claimants have significantly higher lost time days, were more likely to have an opioid prescription, and were more likely to involve an attorney.

Although the rate of growth in obesity among adults is beginning to slow, after decades of increase, it remains too high, and will likely continue.

Today's Workers' Compensation environment will surely be impacted by these emerging challenges—and buyers and brokers would do well to consult their TPA to better understand these potential threats and update their programs.

Debbie Michel is president of Helmsman Management Services, the wholly-owned third party administrator of Liberty Mutual Insurance. She can be reached at debbie.michel@helmsmantpa.com.