Archives for March 2015

E-Mod X-Mod Reduction – #1 Question We Receive

March 26, 2015 By JL Risk Management Consultants

E-Mod X-Mod Reduction Is A Very Popular Question

E-Mod X-Mod reduction is by far the most popular question we receive from phone calls, emails, and in-person at conferences.

Picture of Man Holding up a Question Mark E-Mod X-Mod Reduction Symbol

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How do we reduce our E-Mod today or something along those lines is usually the question. There is no method for E-Mod (X-Mod) reduction that will show results immediately. The system is set up as a trend analysis of sorts.

The look-back or Experience Period is usually your 4th, 3rd, and 2nd policies in the past. There are many exceptions to that general rule.

There are so many articles on this blog concerning E-Mod X-Mod reduction that it would be easier to refer back those articles instead of reiterating them again.

The easiest way to find the articles on your own with a slant more towards your individual type of business or organization is by using the search box on the right side of the page. In fact, you can search the 1625 article blog for other subjects in addition to E-Mods. Feel free to print them for future reference.

One of the best ways for E-Mod (X-Mod) reduction is to have a safety program in place. This is not the one that looks good on paper, but actually a functioning loss prevention program. Keeping your workers out of the Workers Comp system by never having accidents is the best way to reduce your E-Mod.

Check out these prior articles on E-Mod (X-Mod) reduction:

Five Reasons For Sharp E-Mod Increases

When To Start Your Workers Comp Reserve Reduction Program

Experience Mod Reduction Plans – Are They Really Worth It?

A Quick Workers Comp Reserving Refresher

Picture of Thumbs Up Gesture with Business E-Mod X-Mod Reduction Concept

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Your E-Mod can be thought of as the credit score from hell. Your personal credit score can be changed instantaneously by correcting your credit risk. However, your E-Mod may take up to four years to fully reflect your safety efforts.

Patience is a virtue in this area. At least once your safety/loss prevention program shows improvement, the great results can be ongoing even if your company happens to have one accident.

The same methods can be used for self-insured with a twist. Your E-Mod is actually referred to as a LDF (Loss Development Factor). The LDF takes into account a ten years span using an actuarial method to predict the long tail values of a claim. I will cover those next week. Until then, you may use the search box on the right side of the page and search for LDF.

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In Defense of Workers Compensation – System Still Works

March 24, 2015 By JL Risk Management Consultants

The System Still Works-Defense of Workers Compensation

The Workers Compensation System still works in defense.After reading articles deriding the Workers Compensation system, I thought something in defense of Workers Compensation would be appropriate. I have often been a critic of certain Workers Comp systems, rules, court decisions, etc.

Graphic of Workers' Compensation System Still Works Law Govel

One article that piqued my interest was The Demolition of Workers Compensation. I could not have disagreed with the article more.

The Insurance Information Institute’s Bob Hartwig (now at the University of South Carolina) sent a letter to the authors of the ProPublica article. ProPublica responded and the war of words began anew.

I wrote three articles to which I still receive hate emails even today. Those articles were:

These articles, and others, were meant to shake up the Workers Compensation industry worker’s mindset so that as the system changes, one can adapt and be successful.

Workers Comp is not going to stay the same year after year. Check out this WCRI article on case shifting due to the Affordable Care Act.

Defense Lawyer System Still Works With Client In Court

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The ProPublica article was written by people that do not understand Workers Comp as a whole. It seems the article decided to look at the trees and not the forest. Using a few unfortunate situations and making blanket statements from them is erroneous at best.

One has to remember that the underpinning of Workers Compensation systems is the no-fault aspect of the agreement between employer and injured employee. The employee cannot sue the employer for negligence just as the employer cannot deny benefits due to the employee’s possible contributory negligence.

There will always be failings in any system including Workers Compensation. However, did any of the critics actually come up with a better system? As the saying goes, it is easier to be a critic of a movie than make the movie.

Mark Walls also responded from a claims viewpoint. It is always good to hear from someone that has actually handled claims from the trenches.

Dave DePaolo did remind us that sometimes the WC industry has to look in the mirror and reassess itself.

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Captive RRG Legal and Regulatory Environment – CICA Conference

March 19, 2015 By JL Risk Management Consultants

Captive RRG Legal and Regulatory Environment

Wikimedia Commons – howtostartablogonline.net

Captive RRG Legal and Regulatory Environment – I actually attended five different sessions on Day Two of the conference. There was a common theme to two of the sessions. This article will be a combo article of that theme.

Captives and RRG’s have always drawn the attention of regulators and taxing authorities- (not always deservedly so). These two sessions covered the recent and upcoming legal and tax changes

Legal and Regulatory Update for Risk Retention Groups (RRG’s)
- Presenters-Sandra A. Bigglestone CPA, CFE, CPM Director of Captive Insurance State of Vermont; Pamela E. Davis Founder and CEO Alliance of Nonprofits for Insurance, RRG; Robert H. Myers, Jr. Partner Morris, Manning & Martin, LLP ; John Svoboda President National Home Insurance Company(RRG)
New Developments in State and Federal Income Taxes and how they may Impact Captive Strategies
- Presenters-Rick Irvine PwC Bermuda,;Tom Jones, McDermott, Will & Emery LLP; P. Bruce Wright, Sutherland, Asbill & Brennan, LLP

Risk Retention Groups

Risk Retention Groups (RRGs) are alternative risk transfer entities created by the federal Liability Risk Retention Act (LRRA). RRG’s are basically specialized insurance companies where the policyholders are also stockholders.

The upcoming, new, and changes to existing RRG accreditation requirements can be found at this NAIC webpage. The NAIC seems to be stepping up their regulation of RRG’s.

There is a concerted effort to amend the LRRA to include modernizing the Act.

Many State Insurance Commissioners have actually fought against RRG’s and even took the opposing views in lawsuits against RRG’s.

A.M. Best study showed that RRG’s have better loss ratios than traditional commercial insurance.

Only four RRG’s have $100+ million in capital. Most RRG’s are actually smaller than the perception of these huge pools of money.

New Developments- State/Federal Income Taxes

This was a very heavily attended session even though it was the last one of the conference. The IRS included 831 (b) Captive designations as on their list of the “dirty dozen” for tax abuse.

IR 2015-19-(one can see why the IRS became concerned with 831 (b) captives)

Poorly drafted insurance binders and policies to cover ordinary business risks or esoteric, implausible risks for exorbitant premiums while maintaining their economical commercial coverage with traditional insurers – (double dipping?)
Underwriting or actuarial support for insurance premiums either missing or insufficient (no documentation?)

The new proposed legislation enacted a cap of 2.2 million on 831(b) captives which was a great turn of events. However, no one policyholder can have more than 20% of the direct written premium. The one very odd requirement is that none of the risks can be insured with reinsurance.

There is a new draft of proposed legislation that leaves the $2.2 million cap in place and removes the 20% limit along with the no reinsurance requirement.

The Rent-A-Center and Securitas Holding cases were hallmark cases for captives which prevailed in court against the IRS.

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CICA Your Actuarial Report – Understanding/Getting Most Out of It

March 18, 2015 By JL Risk Management Consultants

CICA Your Actuarial Report – Maximizing The Findings

The CICA Your Actuarial Report covered much ground very quickly for captives. The exact title of the presentation was How to Understand and Get the Most Out of Your Actuarial Report.

Businesswoman Actuarial Report Presentation

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The very adept presenters were Michael J. Bemi, CPCU, ARM, ARe – The National Catholic Risk Retention Group, Inc. and Matthew G. Killough, PhD, FCAS, MAAA – Milliman, Inc.

The first area covered was determining how you wish to use your actuarial services. There are three choices:

Basic actuarial services
Business planning and strategy – seemed to fit captives the best
Communications and education

The actuary you choose needs good accurate data such as your:

Business model
Coverage elements and triggers
Deductibles
Reinsurance program

Informing the actuary of any changes in your insurance programs is critical – GIGO.

Before diving right into with a huge (yet expensive) actuarial project, you may want to just have a preliminary analyses performed to save much angst later in the process.

An actuarial report should be read like an insurance policy. Read the actuarial report detail including footnotes and appendices. Ask questions if you do not understand something.

The Ultimate Value is determined by past loss history, any future anticipated and IBNR reserves.

The basic actuarial methods are:

Expected Loss Rate (ELR) –
- Purely exposure-based
- Never incorporates new information
- Can’t be distorted by data issues
Loss Development – creating Loss Development Factors (LDF’s)
- Utilizes the most recent data
- Updates in response to new information
- Subject to distortion by data issues

The CICA Your Actuarial Report session contained good basic info for captives.

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Using Reinsurance to Make Captive Structure – CICA Conference

March 18, 2015 By JL Risk Management Consultants

CICA Conference – Using Reinsurance to Make Strategic Decisions

Presenters – David Sullivan (AON Benfield), Paul McKeon (TransRe) and Brian Alvers (AON Benfield)

Graphic Of Insurance Make Strategic Decisions using reinsurance Icon

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(Re)Insurance Market Overview

The worldwide total supply of insurance services has grown to $4.2 trillion in 2014. There has been a steady growth in supply since a sharp reduction of 29% in 2007 – 2008.

The supply has grown steadily to $575 billion in 2014. Reinsurance supply experienced a 17% reduction in 2007 – 2008.

The US market now totals $72 billion.

The total property excess insurance demand has grown steadily for the last 20 years. The total casualty reinsurance demand has been very flat or decreased for the same period. In 2006, the property excess insurance demand equaled the casualty excess insurance demand. Property reinsurance demand presently outpaces casualty by $10 billion.

Reinsurance Fundamentals

One of the more interesting points brought out in this session was thinking of reinsurance as just insurance for insurance companies. It can also be thought of as a cost-efficient, renewable, financially secure source of capital that compares favorably versus other forms of capital.

This is a great concise article on using reinsurance as a source of capital.

Insurers buy it for sleep at night coverage as it protects against catastrophic loss. The insurers can fund more predictable layers.

How Can a Captive make an evaluation?

Excess insurance reduces volatility unlike using debt or equity for capital. Measuring the capital requirements involves heavy use of financial formulas including leverage ratios and modeling.

An actuarial study of this insurance layer is critical. The flipside of reducing volatility is the essence of excess insurance itself.

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Reforms – WCRI Conference Texas, Pennsylvania, Oregon and Florida

March 6, 2015 By JL Risk Management Consultants

Reforms – WCRI Conference

Reforms – WCRI – States – Texas, Pennsylvania, Oregon and Florida presented on the effects of reforms that were enacted in each respective state.

Reforms Conference for WCRI Emblem From Web

Texas-

270 insurance companies
2.2 billion in direct written premiums

Texas had pre-reform-

High medical costs- over-utilization
Poor Return to Work outcomes
Poor access to care
High insurance premiums
Increasing Opt Out employers
Increasing number of medical disputes

Texas reforms-

Used data to identify medical cost drivers
Built medical infrastructure similar to health insurance
Evidence based medicine
Measured outcomes

Texas solution –

EDI (Electronic Data)
Administrative Dispute Process was initiated
pre-authorization requirements to have more carrier involvement
Adopted Medicare billing structure
Implemented certified networks
Implement closed pharmacy formulary

Texas results-

Average medical bill per claim was reduced significantly
Average premiums decreased 50% since 2003
Less employers opting out of WC system
Medical disputes fell 71%
Access to care improved

Pennsylvania

Act 44 – four areas of reform

Reduce medical costs, while not affected level of care
Address usage charges and utilization creep
Addressing litigation increases and related costs
Address the matter of who runs the insurance marketplace

Act 44 – results

Medical expenditures- patterned after most state systems and Medicare
- Employer directed care expanded to 30 days
- Medicare based fee schedule
Increasing litigation
Competition in the WC marketplace

Act 57

Medical Management
Benefit Management
- Offsets – SSDI , etc.
- Limited PPD to 500 weeks
- Dispute Resolution Management

Oregon

Reform targets

Ability to advise governor of bills that were not good for WC community.
Medical care improvement
Return to Work
AOE/COE – medical substantiation
Palliative care limits
Timely Insurer benefit payments

Reform results

Rate reduction
Better medical care
MD and DO increased treatment, chiropractic care reduced

Florida

System Success

Medical bills filed and paid timely 98.5% of the time
Petitions filed (litigation) has decreased by 2/3
Actual case litigation down by 50%
Coalition formed – 200 companies (carriers, employers, and associations)

Legislative continuity and leadership has been stable, no recent crisis

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Selected State Reforms And Their Effect – WCRI – Blogging Live

March 6, 2015 By JL Risk Management Consultants

Selected State Reforms And Their Effect

Selected State Reforms And Their Effect – The Effects of An Increase in Maximum Weekly Temporary Total Disability (TTD) Benefits or Fee Schedules Impact On Medical Costs –

Vector Of Injured Man Selected State Reforms With Broken Leg

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Indiana – 18% of injured employees had hit the maximum, after the reform – 12% of workers had their TTD benefits limited, a 6% difference and a 50% decrease
New York – 48% of injured workers had their TTD benefits pre-reform 2007, after the reform- 15% of injured workers had their TTD benefits limited by the maximum. That is a stark figure.
Illinois – Fee schedule rates were decreased in 2010, the medical costs decreased 30%, was there actually a decrease as Illinois fee schedule charges were very high originally. 2006 fee schedule reform could be viewed as ineffective Illinois was second highest fee schedule in the nation; office visits were affected more than many other types of services, WC office visits ended up being lower than Group Health or Medicare rates – (an over-adjustment?)

The two areas that seemed to have the highest impact were the Illinois fee schedule subsequent changes and the New York maximum TTD benefit.

Q&A

TTD Limits – Why do limits even exist in WC? The limits were sufficient in 1915. What purpose does the limits now perform, are these limits irrational?

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State By State Analyses – ALAE Allocated Adjustment Expenses – WCRI Blogging Live

March 6, 2015 By JL Risk Management Consultants

ALAE Allocated Adjustment Expenses

The ALAE Allocated Adjustment Expenses of state by state analyses.

State by State Comparison of ALAE – represent 10 to 20% across States

Icon of ALAE Allocated Adjustment Expenses WCRI

Moderator- Ramona Tanabe

California highest overall

Medical Management ALAE – Highest states are Louisiana and New Jersey- interesting that the top two did not include California

There has been a steady Medical Management Expense increase over the last twelve years – 4-11%

Texas had an increase in ALAE medical management expenses even though medical costs decreased. HB 7 caused a sharp increase in ALAE medical expenses. Informal networks were eliminated by Texas, only certified networks

In my humble opinion, HB 7 harmed the WC community as the informal networks were very critical to cutting workers comp costs in Texas.

New Jersey actually had a 14% medical management cost in 2003. By 2014, the medical management ALAE increased to 23%.

The bottom line is that the medical management costs (ALAE) were justified by the decrease in medical costs- for most states.

Litigation Costs

Defense attorney expenses were the highest across the states by far. The state with the highest average amount of litigation ALAE was California.

The legal expenses seemed to be centered around:

The complexity of the state WC system
Length of process
Inefficiencies in the state WC system

Is there a right amount of medical legal medico-legal expenses across the states? Is there a benchmark amount? Are these caused by inefficiencies in the cost reduction systems.

ALAE is one of those areas where much more research needs to be conducted as it is not discussed as much as it should be overall.

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Price Impact – Workers Comp Fee Schedules WCRI Blogging Live

March 5, 2015 By JL Risk Management Consultants

Workers Comp Fee Schedules WCRI Blogging Live

Workers Comp Fee schedules have long been discussed in this blog. One of the best methods for a reduction in the premium employers pay for WC is by instituting or modifying fee schedules.

Vector Of Blogging Workers Comp Fee Schedules On Globe Icon

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Workers Comp Fee schedules are a balancing act. A fee schedule set too high means it will be basically ineffective. A fee schedule set too low will heavily affect access of care.

Barry Lipton – Practice Leader and Senior Actuary NCCI – Price Impact of WC Physician Fee Schedules

Even with discounts, the WC fees may not be a great reduction when compared to group health insurance:

One fourth of WC payments are 30% more below the Maximum Allowable Rate (MAR)
One fourth of general health payments are 63% or more below the MAR

Fee schedules influence more than just the small portion of charges that exceed MAR

Fee schedules may have the unintended consequences of increasing some payments

A discount from a fee schedule amount does not ensure a competitive price.

To determine the effectiveness of fee schedules, it is important to consider market rates.

Woman Workers Comp Fee Schedules Calculating Bills

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Perverse Effect Of Fee Schedules That Are Too Low

Do states that have low WC prices which pay lower than group health cause access to medical care complications?

42 states in US have fee schedule, 6 states have fee schedule rates below group health for intermediate physician office visits.

WC office visits in lower fee schedule states

usually bill as more complex office visits
physician-dispensed medications

From a California study, when the physician fee schedules are frozen, then unfrozen, then frozen again, the physician stopped (while unfrozen) bill complex office visits. When the fee schedule was frozen again, the physicians began billing for more complex office visits.

Radiological studies that were reduced by fee schedules resulted in most billings for unscheduled services as the hospital would receive 75% of charges. (Florida Study). Scheduled radiology was paid at a much-reduce fee due to the 2003 reforms.

Treatment and billing practices were changed to sustain revenue such as medical providers increasing the number of services and the intensity of the services.

WCRI – Physician Dispensing Costs and Consequences

March 5, 2015 By JL Risk Management Consultants

Physician Dispensing Costs and Consequences

Wikimedia commons – National Cancer Institute

WCRI – Physician dispensing costs and consequences major findings

Most reforms are price focused
Prices paid for physician dispensed drugs decreased substantially after post-reform
Fewer physician dispensed drugs after reform
Reforms may not be sustainable due to new drug strengths

18 states made changes to rules – reforms

Informs were mainly price focused

Not all reforms may have worked – Illinois had a large price increase post-reform on such drugs as Vicodin(r). CA had increase in Cyclobenzaprine.

Price difference between physician dispensed and non-physician dispensed were reduced after reforms, but is still yet a sizable difference.

One of the main concerns is the sustainability of the reforms.

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Does Physician Dispensing Lead to Unnecessary Opioid Use?

Florida banned Schedule II and III controlled substances was banned effective July 1, 2011. Florida Pill Mill Bill (House Bill 7095)

Amount of physician dispensing of stronger opioids – fell in Florida from 3.9%to .5% post reform. NSAID’s and weaker opioids that were physician dispensed remained flat or increased slightly.

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Pharmaceutical Trends, Lessons, and Injured Workers Outcomes in the California Workers Compensation System

Physician dispensed Zantac had a 900% cost increase over pharmacy dispensed during a pre-reform period.

Physician dispensing did not delay return to work periods when compared to pharmacy dispensed medications.

Pharmaceutical Practitioner

Workers Comp is a different world from health insurance in reference to physician dispensed medications. The physician vs. pharmacy dispensed medications has been a long-standing turf war ever since doctors made house calls.

Q&A Session WCRI – Physician Dispensing

A great point was brought out that another area of cost shifting is WC as health pays much less for physician dispensed medications.

Affordable Care Act (ACA) Impact on WC Case Shifting – Live WCRI

March 5, 2015 By JL Risk Management Consultants

Affordable Care Act (ACA) Impact on The Future of WC

WCRI – Affordable Care Act (ACA) Impact on WC – Case Shifting was presented by Dr. Richard Victor- the outgoing Director of WCRI. A very popular question that WCRI receives very often.

Picture of Doctor Hand Touching Affordable Care Act Sign on Virtual Screen

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Whether or not the Affordable Care Act as a cost shift from health to WC with the ACA generating these additional WC claims.

Study by Dr. Dulcamin (?) – Shipyards – Indicated Cost Shifting by HMO’s to WC, as the amount of HMO’s covered shipyard workers, the amount of WC claims increased substantially.

The central part of the ACA’s is ACO’s – Accountable Care Organizations

ACO is basically a network of medical providers that work together in a network to provide care.

Fee for Services vs. Capitated vs. Workers Comp

Fee for services has no motivational aspect to increase WC as ACO’s due as they will end up paying less than Fee For Service or WC.

Accident treatment by Dr. heavily relies on the work relatedness as assessed by the Dr.

Capitation will likely generate claims-shifting due to higher fees paid by WC.

The states where capitation is common there has been a 30% increase in soft-tissue (30%). That is a significant number. States where there is no capitation – there was a 10% reduction in WC soft tissue industries

Interesting comparison –

Capitation – WC Soft tissue injuries up 30%
No Capitation- WC Soft tissue injuries down 10%

Fewer workers enrolled in capitated plans – surprising fact

Year 2000 – Almost 30%
Year 2013- Less than 15%

High deductible plans (i.e. $2,000)

Has reached 35% of all workers – may have heavy cost shifting if workers has to choose between Workers Comp- first dollar paid or eating a $2,000 deductible.

J&L Risk Management Consultants – Cutcompcosts.com 20th Year!!!

March 4, 2015 By JL Risk Management Consultants

J&L Risk Management Consultants

I originally established J&L Risk Management Consultants, Inc. as J&L Insurance Consultants, Inc in 1996. In 1995, I called the company James J Moore, Risk Consultant for the first year. J&L Insurance Consultants, Inc. morphed into J&L Risk Management Consultants Inc as so many people were calling for insurance quotes, even though as one our charter statements, we do not sell insurance as to give advice on an impartial basis.

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Cutcompcosts.com was added in 1999 as it seemed that the earlier one got on board the World Wide Web the better it would be for business. The blog was started in 2007 after I attended a Network Solutions conference on how to increase web traffic. Content was key.

At one time, I used to write a pithy article every day including weekends. Workers Comp is a vast subject. However, many of my posts could have easily become redundant. I try to write as much nuts-and-bolts type articles as possible.

There are presently 1,420 posts online in this blog. I was going to convert the blog to book form until I found out the material would cover 9 – 10 volumes. I do plan to finish up a book in the near future.

I now do press coverage for many conferences including The NWCDC in Las Vegas

I will be covering the CICA World Captive Conference, Orlando, and the WCRI Conference over the next two weeks.

Recently, the blog was moved from Blogger to WordPress. This undertaking was much more of a task than I had originally anticipated as there are still a few kinks to work out overall.

The blog was released in a mobile compliant version last month after receiving the Google warning that the posts were not rendering on smartphones and tablets.

If you see any improvements that might be made to the blog or weekly newsletter, drop me a quick note using the Contact Us blank at the right top of the blog.

Thanks for reading the blog and newsletter.