Risk & Insurance Insights | October 2, 2013
Healthcare reform’s workers’ compensation impact: uncertainty rules, for now
Since the Patient Protection and Affordable Care Act (ACA) became the law of the land in March 2010, healthcare reform began to significantly change the U.S. healthcare delivery system, though its impact on workers’ compensation has been minimal to date.
With the “individual mandate” and health insurance exchanges poised to go into effect in 2014, workers’ compensation benefits payers may soon begin to feel the impact of the healthcare reform, according to Tom Hebson, vice president, product development and government relations, at Safety National, the market leader in excess workers’ compensation based in St. Louis, Mo.
What will those expected changes be? “It’s not quite clear,” Hebson said. But he is willing to provide some insight about the upcoming changes that may impact workers’ compensation costs and availability over time. Hebson’s initial areas of concern include the overall impact of doctors being able to deliver adequate care to injured workers, the underwriting impact of the availability of medical care and the potential shift of the workforce from full time to part time over the next few years.
The U.S. Department of Health and Human Services estimates that the physician supply will increase by only seven percent by 2020. Over the same time period, the U.S. Census Bureau projects a 36 percent growth in the number of Americans over age 65, the very segment of the population with the greatest health care needs. As a result, by 2020 the country will face a serious shortage of both primary care and specialist physicians to care for an aging and growing population, according to the Association of American Medical Colleges.
“Right now the biggest impact is uncertainty,” Hebson said. “Having said that, it’s important to be prepared for possible and probable changes when the ACA’s central tenets – private insurance exchanges and the individual mandate – go into effect.”
When contemplating the impact concerning delivery of care by doctors, Hebson explained, the uncertainty focuses on whether a potential shortage of doctors will overwhelm the delivery of healthcare as, potentially, 30 million new healthcare users come into the system at the same time while the number of doctors, particularly primary physicians, is decreasing. On a per capita basis, starting in 2015, the estimated doctor shortage will be approximately 63,000. By 2025, the shortage could be as high as 131,000, primarily due to the impact of additional users coming into the healthcare system.
“Workers’ compensation is a long-tail business and the future impact of medical care access, availability and capabilities can greatly affect final costs of a claim,” Hebson said.
Today’s current workers’ compensation lost time claims average 60% medical and 40% indemnity and are greatly influenced by the cost and delivery of professional and unencumbered medical services. Despite many perceived cost savings services in the workers’ compensation system, the measurement of having quality and knowledgeable care for an injured worker is critical in controlling these costs. And doctors are looking to leave their practices, further overloading the system and ability to control costs and outcome. Declining reimbursements for Medicare and Medicaid are behind some of the exodus of doctors out of small practices or into retirement. For states that follow Medicare schedules for their workers’ compensation, these doctors are generally collecting about 81 percent of their private rates.
The ACA does provide for additional reimbursements for doctors practicing in rural areas, Hebson noted, but there has been discussion that practicing physicians may seek to migrate into professional zones to maintain their ability to maximize efficiencies of the increased regulatory requirements within the ACA. These doctors are also looking at the inability to have a quality patient relationship as another underlying reason to leave the profession or pursue straight private pay practices. This potential migration could impact the ability to deliver quality care where rural or light urban employers exist.
With increased workloads due to doctor shortages, and increased regulatory burdens, injured workers could find themselves waiting for needed immediate and ongoing care. Workers’ compensation relies on quickly getting injured workers to care facilities that are nearby, and when claims include lost time, that the injured worker is able to get the necessary timely follow-up care and direction. The aging population may also impact the system from the point of adding additional numerical usage burdens to the system as noted above with doctor shortages increasing over the next 10-15 years, coincidentally about the same time that a serious claim that occurs in 2013 may be maturing or trending upward.
From an underwriting perspective, there may be new considerations as underwriters assess the impact of employer exposures, access to immediate medical care and possible shift of risk management resources to funding healthcare. New ACA rules for large employers could cause many service and light manufacturing industries to shift their workforce from full time to part time. This shift potentially creates a larger overall workforce that requires additional training and management resources to ensure that employees are capable of performing their job responsibilities and manage their workplace in a safe and orderly manner.
“If a company increases its overall labor force by reducing individual work hours (less than 30 per week), and then they have to hire additional workers to fill the gap, the company is potentially exposing themselves to losses created by a new or inexperienced workforce,” Hebson said. The added workforce may be split into additional shifts creating exposures when transferring from one shift to the next.
“Think of the traditional three shift work day based on full-time employees now being split into 4-5 shifts of part-time employees,” he added. “A part-time workforce also brings new return-to-work (RTW) considerations to an employer when labor may easily be replaced versus putting them on a formal RTW schedule.”
Although the cost of implementing the ACA on employers is still developing, costs may be considerably higher for an employer if they offer the plan to all employees. Cost figures of 14-39 percent have been discussed with some high estimates in the triple digit range. If an employer elects to offer coverage and pay the penalties, they still will have an additional cost under the ACA, and these additional costs could impact the overall risk management of an employer as they look to cut costs in order to pay for their responsibilities under the ACA. This cost shifting may create a less safe working environment and, when coupled with possible new and less-skilled employee population, may lead to deteriorating results in the workers’ compensation line.
Overall, the ACA impact on workers’ compensation will most likely take years to sort out and analyze.
Near-term considerations should be undertaken to analyze how or if your organization will be impacted in the underwriting process, Hebson concluded, adding that many of the other variables will be analyzed as losses mature within the claims system.
“As noted, workers’ compensation business is by nature a long-tail business, and this will delay accurate data analysis for years to come,” he said. “My best advice for risk managers is watch for the trends and be prepared to make adjustments as you deem necessary.”