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Workers’ Compensation Reform Impacts on Loss Development Patterns

Workers’ Compensation Reform Impacts on Loss Development Patterns. Casualty Loss Reserve Seminar, September 2007 Michelle Sheng, FCAS, MAAA WCIRB of California. Agenda. Recent California WC Reforms Areas of Impact - overall cost level: by provision - payment patterns

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Workers’ Compensation Reform Impacts on Loss Development Patterns

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  1. Workers’ Compensation Reform Impacts on Loss Development Patterns Casualty Loss Reserve Seminar, September 2007 Michelle Sheng, FCAS, MAAA WCIRB of California

  2. Agenda • Recent California WC Reforms • Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution • Impact of Frequency Distribution Changes • Caveats/Precautions

  3. Agenda • Recent California WC Reforms

  4. Recent California WC Reforms • Assembly Bill No. 749 Highlights - Changes to maximum and minimum weekly indemnity benefits over 4 years - Annual cost of living adjustments on Permanent Total & life pension benefits - Repealed primary treating physician presumption (under certain circumstances)

  5. Recent California WC Reforms • Assembly Bill No. 227/Senate Bill No. 228 Highlights - Replacement of vocational rehabilitation benefits with nontransferable education vouchers - Changes to physician, hospital, surgical facility and pharmaceutical fee schedules - Adoption of ACOEM medical treatment guidelines - Limitation of number of chiropractic and physical therapy visits

  6. Recent California WC Reforms • Senate Bill No. 899 - Two-year cap on temporary disability payments - Apportionment of permanent disability benefits - Change in scheduled # of weeks of PD - Multi-tiered PD benefits - PD Rating Schedule - Establishment of medical provider networks and independent medical reviews

  7. Agenda • Recent California WC Reforms • Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution

  8. Historical Payment Patterns • Basis of WCIRB’s Loss Development Projections • Lengthening of Payment Patterns in Late 1990s (particularly medical)

  9. Impact of Reforms on Loss Development • History No Longer Representative of Future • Different Impact on Indemnity versus Medical • Reforms Expected to Reduce Payment Duration - Medical treatment reforms - VR benefits eliminated (late-paying) - PPD durations reduced • Many Reforms Impact Pre-existing Claims

  10. Impact of Reforms on Loss Development Indemnity • Impact Varies by Accident Year • Apply Duration and/or Compensation Change to Payment Pattern by Type of Benefit (death, permanent total, permanent partial, temporary, life pension, vocational rehabilitation) • Retroactive Impact of PDRS

  11. Impact to CA Indemnity Payment Patterns by Accident Year

  12. Comparison of Indemnity Payment Patterns

  13. Impact of Reforms on Loss Development Medical • Many Reform Impacts by Year of Payment, Regardless of Year of Accident • Adjust Pre-SB 228 Fee Schedule Losses to SB 228 Fee Schedule Level to Create Consistent Development Triangle • Impact of ACOEM Guidelines and Medical Provider Networks on Utilization of Medical Services for AY2004 and Prior • Assume Basic Payment Pattern Otherwise Unaffected

  14. Comparison of Paid Medical 12-to-24 Month Development Factor

  15. Comparison of Paid Medical 84-to-96 Month Development Factor

  16. Comparison of Medical Payment Patterns

  17. Agenda • Recent California WC Reforms • Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution • Impact of Frequency Distribution Changes on Indemnity

  18. Impact of Frequency Distribution Changes on Indemnity • Post-reform Indemnity Development Emerging Better than Projected • Hypothesis A: Overall Cost Level Estimates Partly Understated (annual WCIRB Cost Monitoring Report) • Hypothesis B: Change in Claims Mix (Distribution of Claims among Injury Types)

  19. Distribution of Indemnity Claims

  20. WCIRB Loss Development Study • Annual Report since 2005 • Overall Impact by Provision Based on Law Evaluation Model simulating reform provisions using actual data, outside expertise, etc. • Payment Patterns Adjusted Based on Applying Provision Impact to Historical USR and Call Data • Indemnity and Medical Payment Patterns Adopted in WCIRB Pure Premium Rate Filings • Available on www.wcirbonline.org

  21. Agenda • Recent California WC Reforms • Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution • Impact of Frequency Distribution Changes • Caveats/Precautions

  22. Caveats/Precautions • Unmeasurable Provisions • Provisions Not Realized • Unanticipated Court Decisions and Appeals - Apportionment provision: % or $? - Pendergrass: 1st TD payment or 1st med-legal report? • Great Uncertainty on Implementation, Regulation and Judicial Interpretations

  23. Workers’ Compensation Reform Impacts on Loss Development Patterns Questions?

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