© WCIRB California. All Rights Reserved. WCIRB California ® Workers’ Compensation Reform Impacts on Loss Development Patterns Casualty Loss Reserve Seminar,

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Presentation transcript:

© WCIRB California. All Rights Reserved. WCIRB California ® Workers’ Compensation Reform Impacts on Loss Development Patterns Casualty Loss Reserve Seminar, September 2007 Michelle Sheng, FCAS, MAAA WCIRB of California

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

© WCIRB California. All Rights Reserved. WCIRB California ® 3 Agenda Recent California WC Reforms Recent California WC Reforms

© WCIRB California. All Rights Reserved. WCIRB California ® 4 Recent California WC Reforms Assembly Bill No. 749 Highlights 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weekly indemnity benefits over 4 years - Annual cost of living adjustments on Permanent Total & life pension benefits - Repealed primary treating physician presumption (under certain circumstances)

© WCIRB California. All Rights Reserved. WCIRB California ® 5 Recent California WC Reforms Assembly Bill No. 227/Senate Bill No. 228 Highlights 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

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

© WCIRB California. All Rights Reserved. WCIRB California ® 7 Agenda Recent California WC Reforms Recent California WC Reforms Areas of Impact Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution

© WCIRB California. All Rights Reserved. WCIRB California ® 8 Historical Payment Patterns Basis of WCIRB’s Loss Development Projections Basis of WCIRB’s Loss Development Projections Lengthening of Payment Patterns in Late 1990s (particularly medical) Lengthening of Payment Patterns in Late 1990s (particularly medical)

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

© WCIRB California. All Rights Reserved. WCIRB California ® 10 Impact of Reforms on Loss Development Indemnity Impact Varies by Accident Year 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) 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 Retroactive Impact of PDRS

© WCIRB California. All Rights Reserved. WCIRB California ® 11 Impact to CA Indemnity Payment Patterns by Accident Year

© WCIRB California. All Rights Reserved. WCIRB California ® 12 Comparison of Indemnity Payment Patterns

© WCIRB California. All Rights Reserved. WCIRB California ® 13 Impact of Reforms on Loss Development Medical Many Reform Impacts by Year of Payment, Regardless of Year of Accident 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 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 Impact of ACOEM Guidelines and Medical Provider Networks on Utilization of Medical Services for AY2004 and Prior Assume Basic Payment Pattern Otherwise Unaffected Assume Basic Payment Pattern Otherwise Unaffected

© WCIRB California. All Rights Reserved. WCIRB California ® 14 Comparison of Paid Medical 12-to-24 Month Development Factor

© WCIRB California. All Rights Reserved. WCIRB California ® 15 Comparison of Paid Medical 84-to-96 Month Development Factor

© WCIRB California. All Rights Reserved. WCIRB California ® 16 Comparison of Medical Payment Patterns

© WCIRB California. All Rights Reserved. WCIRB California ® 17 Agenda Recent California WC Reforms Recent California WC Reforms Areas of Impact Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution Impact of Frequency Distribution Changes on Indemnity Impact of Frequency Distribution Changes on Indemnity

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

© WCIRB California. All Rights Reserved. WCIRB California ® 19 Distribution of Indemnity Claims

© WCIRB California. All Rights Reserved. WCIRB California ® 20 WCIRB Loss Development Study Annual Report since 2005 Annual Report since 2005 Overall Impact by Provision Based on Law Evaluation Model simulating reform provisions using actual data, outside expertise, etc. 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 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 Indemnity and Medical Payment Patterns Adopted in WCIRB Pure Premium Rate Filings Available on Available on

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

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

© WCIRB California. All Rights Reserved. WCIRB California ® 23 Workers’ Compensation Reform Impacts on Loss Development Patterns Questions?