Impact Of The Great Recession
On Workers’ Compensation
Impact Of The Great Recession
On Workers’ Compensation
Outline
Outline
What if this recovery is very different What if this recovery is very different
from past recoveries?
from past recoveries?
What if very different approaches are What if very different approaches are
required for state programs?
required for state programs?
80 90 100 110 120 130 140 150 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 20082010 Em p loym e n t ( m illion s)
Past Recessions:
Always Return To Normal
Past Recessions:
Always Return To Normal
80 90 100 110 120 130 140 150 198019821984198619881990199219941996199820002002200420062008201020122014 Em p loym e n t ( m illion s) V-, U-Shaped?
The Great Recession:
What Type Of Recovery?
The Great Recession:
What Type Of Recovery?
80 90 100 110 120 130 140 150 1980198219841986198819901992199419961998200020022004200620082010201220142016 Em p loym e n t ( m illion s)
?
“Jagged Checkmark” Recovery:
Back To A “New Normal”
“Jagged Checkmark” Recovery:
Back To A “New Normal”
0 2 4 6 8 10 12 14 16 Ja n -7 0 Ja n -7 3 Ja n -7 6 Ja n -7 9 Ja n -8 2 Ja n -8 5 Ja n -8 8 Ja n -9 1 Ja n -9 4 Ja n -9 7 Ja n -0 0 Ja n -0 3 Ja n -0 6 Ja n -0 9 T o ta l H o u se h ol d D eb t O u ts ta n d in g (t ri llio ns )
Household Debt Soared
Expansion Of Credit Fueled Big Bubbles
Expansion Of Credit Fueled Big Bubbles
PrePre--Great Recession, creditGreat Recession, credit--worthiness and worthiness and default risk was too
default risk was too--often overoften over--estimatedestimated
OverOver--extension of credit led to . . .extension of credit led to . . .
Exaggerated the demand forExaggerated the demand for
Consumer goodsConsumer goods
HousingHousing
Financial assets (stocks)Financial assets (stocks)Why A “New Normal” Is Possible
Why A “New Normal” Is Possible
Exaggerated levels of demand led to Exaggerated levels of demand led to
Over-Over-building of housing, factories, shopping building of housing, factories, shopping centers, etc.centers, etc.
Inflated asset prices (housing, stocks)Inflated asset prices (housing, stocks)
Inflated tax revenuesInflated tax revenues But this was But this was ““pseudopseudo--demanddemand””
Total demand = real demand + pseudo-Total demand = real demand + pseudo-demanddemand New NormalNew Normal——based on real demand based on real demand
80 90 100 110 120 130 140 150 1980198219841986198819901992199419961998200020022004200620082010201220142016 Em p loym e n t ( m illion s)
The “New Normal” Discounts
The Pre-bubble Pseudo-Demand
The “New Normal” Discounts
The Pre-bubble Pseudo-Demand
Outline
Outline
What if this recovery is very different from What if this recovery is very different from
past recoveries?
past recoveries?
What if very different approaches are What if very different approaches are required for state programs?
required for state programs?
Why New Approaches May Be Needed
Why New Approaches May Be Needed
The The ““New NormalNew Normal”” means means
Slower recovery & lower revenues for most public Slower recovery & lower revenues for most public and private entitiesand private entities
Fiscal issues and job growth dominate state Fiscal issues and job growth dominate state policy debatespolicy debates
The New Normal may require structural The New Normal may require structural changes in public programs, including WC changes in public programs, including WC
Big headwinds challenge state programsBig headwinds challenge state programs—— unprecedented in the past 70 years
unprecedented in the past 70 years
States tend to sort into job winners andStates tend to sort into job winners and loserslosers
80 90 100 110 120 130 140 150 1980198219841986198819901992199419961998200020022004200620082010201220142016 Em p loym e n t ( m illion s)
Job Growth: The Principal Policy Debate
Job Growth: The Principal Policy Debate
Forces Shaping State Programs
Forces Shaping State Programs
Lower revenues in the Lower revenues in the ““New NormalNew Normal”” shapeshape public programs
public programs
Job growth may be the votersJob growth may be the voters’’top prioritytop priority
But unprecedented fiscal headwindsBut unprecedented fiscal headwinds
Past govPast gov’’t financial commitments limit budget flexibilityt financial commitments limit budget flexibility
Aging baby boomersAging baby boomers
International competitionInternational competition
Immigration trends and policiesImmigration trends and policies
Political polarization and paralysisPolitical polarization and paralysis
Reduced federal funding for statesReduced federal funding for statesUnfunded State And Local Government
Commitments Limit Flexibility
Unfunded State And Local Government
Commitments Limit Flexibility
Unfunded public pension liabilitiesUnfunded public pension liabilities
20082008——$500 billion in state programs$500 billion in state programs Unfunded retiree health benefitsUnfunded retiree health benefits
20082008——$550 billion in state programs$550 billion in state programs Deferred maintenance on public infrastructureDeferred maintenance on public infrastructure
Outline
Outline
What if this recovery is very different from What if this recovery is very different from
past recoveries?
past recoveries?
What if very different approaches are What if very different approaches are
required for state programs?
required for state programs?
What might that mean for WC systems?What might that mean for WC systems?
Implications Of New Normal And
Fiscal Headwinds For State Governments
Implications Of New Normal And
Fiscal Headwinds For State Governments
Public/private entities have smaller revenuesPublic/private entities have smaller revenues
Winning states have job growthWinning states have job growth
Reduce unnecessary costs in public programs to Reduce unnecessary costs in public programs to fuel job growthfuel job growth
Losing states do not materially reduce Losing states do not materially reduce
unnecessary costs
unnecessary costs
Job growth mutedJob growth muted
Implications Of New Normal For
WC Systems
Implications Of New Normal For
WC Systems
WC public policy debates focus onWC public policy debates focus on
Fiscal stressFiscal stress
Eliminating unnecessary costsEliminating unnecessary costs
Large numbers of longer-Large numbers of longer-term unemployedterm unemployedImplications Of New Normal For
WC Systems—State Fiscal Stress
Implications Of New Normal For
WC Systems—State Fiscal Stress
Lower revenues for state agencyLower revenues for state agency
Especially if funded from general revenuesEspecially if funded from general revenues
Doing more with lessDoing more with less
Opportunities for consolidation?Opportunities for consolidation?
Agency functionsAgency functions
Across agenciesAcross agencies
Use of multi-Use of multi-state alliances to achieve state alliances to achieve economies of scaleReducing Unnecessary Costs:
Examples From WCRI CompScope™ Benchmarks Reducing Unnecessary Costs:
Examples From WCRI CompScope™ Benchmarks
Unnecessary medical careUnnecessary medical care
Unnecessarily high (low) medical pricesUnnecessarily high (low) medical prices
Unnecessarily high (low) income benefitsUnnecessarily high (low) income benefits
Unnecessary litigation and litigation costsUnnecessary litigation and litigation costs
Unnecessary regulatory compliance costsUnnecessary regulatory compliance costs
Unnecessary delays in return to workUnnecessary delays in return to work
Might There Be More Unnecessary Surgery
In States With Higher Surgery Rates?
Might There Be More Unnecessary Surgery
In States With Higher Surgery Rates?
0% 10% 20% 30% 40% 50% CA TX FL PA MD MA IL CT WI MI LA GA IN NC AR TN % O f D isc C a se s W it h Ba ck Sur g er y
2000–2003 Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment
More Frequent Use Of MRIs, Inconsistent
With Evidence-Based Guidelines
More Frequent Use Of MRIs, Inconsistent
With Evidence-Based Guidelines
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% MA WI CT MD CA IN MI GA PA IL TX NC TN FL LA AR % O f N o n sp e cif ic Lo w B a ck Pa in C a ses Wit h M R Is
2000–2003 Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment
Pain Management Injections Used
Twice As Often In IN, GA Vs. CT, MA
Pain Management Injections Used
Twice As Often In IN, GA Vs. CT, MA
0% 10% 20% 30% 40% 50% 60% 70% CT MA MI CA MD TX PA FL LA TN NC WI AR IL GA IN % O f Disc C ases W it h P ai n M anag em ent I n je ct io ns
2000–2003 Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment
Average Number Of Pills Per Claim
With Rx Higher In LA And TX
Average Number Of Pills Per Claim
With Rx Higher In LA And TX
0 100 200 300 400 500 600 NJ MI MA WI IL IN IA TN PA MD NC NY* FL CA* TX LA A ve ra g e Nu m b er Of P ills P er C la im Wi th R x
Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting
Pharmacy Reimbursements
Diverse Prescribing Practices
Example: Muscle Relaxants
Diverse Prescribing Practices
Example: Muscle Relaxants
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% IA IL WI IN PA NJ MI MA NY* NC TN TX CA* MD FL LA % O f C laim s W it h Rx T h at Had M u sc le R el ax ant s
Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting
Physician Dispensing Rx Drugs
Most Common In IL, MD, MI & FL
Physician Dispensing Rx Drugs
Most Common In IL, MD, MI & FL
0% 10% 20% 30% 40% 50% 60% MA NY TX WI IA LA NC TN IN NJ PA IL MD MI FL CA* % O f A ll R x T h at W er e Di sp ensed By P h ys ic ia ns
Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *Prior To Law Change That Reduced Physician Dispensing
Physician-Dispensers Received Higher Prices Than Pharmacies For Same Rx: FL Example Physician-Dispensers Received Higher Prices Than Pharmacies For Same Rx: FL Example
Top 7 Drugs Top 7 Drugs % Of Rx % Of Rx Dispensed Dispensed By By Physician Physician
Price Per Pill Price Per Pill
In Florida
In Florida % Diff.% Diff. Physician
Physician PharmacyPharmacy Hydrocodone
Hydrocodone--Acetamin. (VicodinAcetamin. (Vicodin®®)) 12%12% $0.96$0.96 $0.46$0.46 +109%+109% Ibuprofen (Motrin Ibuprofen (Motrin®®)) 47%47% $0.49$0.49 $0.34$0.34 +44%+44% Cyclobenzaprine HCl (Flexeril Cyclobenzaprine HCl (Flexeril®®)) 33%33% $1.33$1.33 $1.19$1.19 +12%+12% Naproxen (Aleve Naproxen (Aleve®®)) 49%49% $1.58$1.58 $1.17$1.17 +35%+35% Propoxyphene
Propoxyphene--N APAP (DarvocetN APAP (Darvocet®®)) 19%19% $1.00$1.00 $0.63$0.63 +59%+59%
Carisoprodol (Soma
Carisoprodol (Soma®®)) 54%54% $3.05$3.05 $0.62$0.62 +392%+392%
Ranitidine HCl (Zantac
Ranitidine HCl (Zantac®®)*)* 95%95% $3.15$3.15 $1.46$1.46 +116%+116%
*This drug was available over-the-counter 35 cents per pill
Unnecessary medical careUnnecessary medical care
Unnecessarily high (low) medical pricesUnnecessarily high (low) medical prices
Unnecessarily high (low) income benefitsUnnecessarily high (low) income benefits
Unnecessary litigation and litigation costsUnnecessary litigation and litigation costs
Unnecessary regulatory compliance costsUnnecessary regulatory compliance costs
Unnecessary delays in return to workUnnecessary delays in return to work
Reducing Unnecessary Costs:
Areas To Examine
Reducing Unnecessary Costs:
Areas To Examine
43 States Regulated Nonhospital
Prices In 2009
Regulation No Regulation
0% 25% 50% 75% 100% 125% 150% 175% 200% 225% MA FL CA MD NY HI NC WV UT MI PA SC KY CO OK OH TX VT KS AR SD NM WA LA ME MN GA TN MS WY AL ND AZ CT NE MT OR NV ID DE IL AK % G reat er T h an S tat e Med ic ar e— 200 9
Source: Benchmarks For Designing WC Medical Fee Schedules: 2009
Most Nonhospital Fee Schedules Were
40% To 90% Above Medicare In 2009
Most Nonhospital Fee Schedules Were
40% To 90% Above Medicare In 2009
Vicodin
®Costs Twice As Much In LA
As In MA, Why?
Vicodin
®®Costs Twice As Much In LA
As In MA, Why?
$0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 MA PA WI CA* MI FL IA MD NJ TN IL IN NC TX NY* LAClaims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting
Pharmacy Reimbursements Aver age Pr ice Per Pill Paid To Ph armac ies
Hospital Inpatient Fee Schedules—
Per Diem Rates
Hospital Inpatient Fee Schedules—
Per Diem Rates
Surgical Stay Surgical Stay Medical Stay Medical Stay $8,906 $8,906 $8,906 $8,906 Maximum Maximum $2,059 $2,059 $1,646 $1,646 Median Median $1,338 $1,338 $1,186 $1,186 Minimum Minimum
Rates are from the Guide for Policymakers, calculated for a large hospital (200–900 beds) in a large city in 9 states. Per diem rates are for the first two days of the inpatient stay.
Range Of Per Diem Rates (2009) Range Of Per Diem Rates (2009)
$16,524 $16,524 $30,185 $30,185 $18,701 $18,701 Illinois Illinois $7,254 $7,254 $8,969 $8,969 $7,459 $7,459 Georgia Georgia $7,662 $7,662 $9,473 $9,473 $7,878 $7,878 13
13--State MedianState Median
Back & Neck
Back & Neck
Procedures Procedures (DRG 491) (DRG 491) Knee Knee Procedures Procedures (DRG 489) (DRG 489) Hernia Hernia Procedures Procedures ( (DRG 355)DRG 355) Range Of DRG Range Of DRG Rates 2009 Rates 2009
Rates are from the Guide for Policymakers, calculated for a large hospital (200–900 beds) in a large city.
Hospital Inpatient Fee Schedules—
DRG Rates
Hospital Inpatient Fee Schedules—
DRG Rates
Unnecessary medical careUnnecessary medical care
Unnecessarily high (low) medical pricesUnnecessarily high (low) medical prices
Unnecessarily high (low) income benefitsUnnecessarily high (low) income benefits
Unnecessary litigation and litigation costsUnnecessary litigation and litigation costs
Unnecessary regulatory compliance costsUnnecessary regulatory compliance costs
Unnecessary delays in return to workUnnecessary delays in return to work
Reducing Unnecessary Costs:
Areas To Examine
Reducing Unnecessary Costs:
Areas To Examine
Might There Be Unnecessary
Complexity In Dispute Resolution?
$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000
MD IL IN MA* TN NC WI TX MI* IA PA* FL CA MN LA*
D ef ens e A tt o rn ey P ay m en t/ C lai m
*Wage-Loss Benefit System
2005/08 Claims With > 7 Days Of Lost Time With Defense Attorney Payment > $500 (Indexed), Adjusted
Might Some Attorney Involvement
Be Unnecessary?
Might Some Attorney Involvement
Be Unnecessary?
0 10 20 30 40 TX WI IN MN IA MA MI PA NC LA IL FL CA TN MDClaims With Defense Attorney Payments > $500 As A % Of 2005/08 Claims With > 7 Days Of Lost Time,
Adjusted For Injury/Industry Mix
% O
f C
la
im
s
Might Some Medical-Legal Expense
Be Unnecessary?
Might Some Medical-Legal Expense
Be Unnecessary?
$0 $500 $1,000 $1,500 $2,000 $2,500 IA NC MA FL TN TX IN MD MI IL WI LA MN CA PA A ver age M edic al-L egal Ex p en se /C la im2005/08 Claims With > 7 Days Of Lost Time With Medical-Legal Expenses, Adjusted For Injury/Industry Mix
WC public policy debates focus onWC public policy debates focus on
Fiscal stressFiscal stress
Eliminating unnecessary costsEliminating unnecessary costs
Large numbers of longer-Large numbers of longer-term unemployedterm unemployedImplications Of New Normal For
WC Systems
Implications Of New Normal For
WC Systems
0 5 10 15 20 25 30 Ja n -90 Ja n -92 Ja n -94 Ja n -96 Ja n -98 Ja n -00 Ja n -02 Ja n -04 Ja n -06 Ja n -08 Ja n -10 Me d ia n D u ra ti o n O f Un e m p lo yme n t ( w e e ks )Unprecedented Numbers Of Workers
Suffer Long Periods Away From Work
Unprecedented Numbers Of Workers
Suffer Long Periods Away From Work
0 1 2 3 4 5 6 7 8 Ja n -9 0 Ja n -9 2 Ja n -9 4 Ja n -9 6 Ja n -9 8 Ja n -0 0 Ja n -0 2 Ja n -0 4 Ja n -0 6 Ja n -0 8 Ja n -1 0 # O f W o rk er s U n em plo ye d > 6 M o nt h s ( m ill io n s)
7 Million Workers Away From
Work For More Than 6 Months
7 Million Workers Away From
Work For More Than 6 Months
Implications Of New Normal For
WC Systems
Implications Of New Normal For
WC Systems
Larger numbers of longLarger numbers of long--term unemployedterm unemployed
Standards for terminating temporary disability Standards for terminating temporary disability benefitsbenefits
Adequacy of income benefits for long-Adequacy of income benefits for long-term term unemployedunemployed
Great Recession May Require
Structural Adjustments In WC Systems
Great Recession May Require
Structural Adjustments In WC Systems
May not return to May not return to ““old normalold normal”” as in as in most recessions
most recessions
Most organizations return to a lower level Most organizations return to a lower level
of revenues, including state revenues
of revenues, including state revenues
Successful organizations reduce Successful organizations reduce
unnecessary costs
unnecessary costs
