Casualty Loss Reserve Seminar

1. Casualty Loss Reserve Seminar Workers Compensation Selected States Issues Florida, California & New York

2. Selected State WC Issues • Florida: Frank T. White (ftwhite@bellsouth.net) • California: Don Rainey (don.rainey@milliman.com) • New York: Robert Meyer (robert.meyer@milliman.com)

3. Florida Workers Compensation • Attempt to Compare Statutory Benefits to Other States • Attempt to Compare Actual Claim Patterns to Statutory Provisions • Identify Inconsistencies • Identify Cost Drivers

4. Data Acknowledgement • NCCI • State Advisory Forum • Various Legislative/Study Commission Presentations • Workers Compensation Research Institute • Various Special Legislative Studies • CompScope Product

5. Florida Workers Compensation • Statutory Benefit Provisions • Last major benefit/administrative change to WC implemented 1/1/94 • Last major Medical Fee Schedule Change implemented in 1982 • Strict reading would leave one to believe benefits/costs among lowest in nation • Actual State Data Inconsistent with above • High average medical costs per case • High average indemnity costs per case • ALAE/Litigation rate among highest in nation

6. Statutory Benefit Provisions(WCRI Studies Serve as Data Source) • Medical Fee Schedule • Statutory Impairment Benefits • Temporary Total Duration • Definition of Permanent Total Disability

7. According to WCRI, Florida’s Fee Schedule Lowest Overall FL

8. WCRI: Florida’s WC Fee Schedule Below Medicare (-10% on Average) 168% 226% FL

9. Fees Lower than Medicare for All But Surgery

10. Basics of Permanent Impairment Benefits • Paid when worker attains maximum medical improvement • In Florida, also paid when worker reaches 104 weeks of temporary disability benefits (maximum TT duration) • Benefit rate is one-half TT benefit rate or 33 1/3% wage • Paid in accordance with degree of disability: 3 weeks for each % of impairment to the body as a whole plus supplemental benefits if impairment rating equals 20% or more • Florida at low end on each of the above

11. Florida Statutory Impairment Benefits Lower Than Large States

12. Florida Statutory Impairment Benefit: 25-50% of Large StatesNote: Florida benefit expressed as % of each state

13. Florida Statutory Benefits for Total Disability • Temporary Total Disability • Benefit rate and maximum is comparable • Duration of TT benefits limited to 104 weeks, regardless of whether maximum medical improvement has been reached • Permanent Total Disability • Benefit rate and maximum is comparable • Definition intended to restrict to “Catastrophic Injuries”, however contains proviso related to social security disability qualification

14. Summary of Statutory Benefit Provisions • Lowest Medical Fee Schedule and Below Medicare • Lowest Permanent Impairment Benefits for “typical” partial disability cases • Limited Duration for Temporary Total Benefits • Definition of Permanent Total Intended to be Restricted to only Catastrophic Cases

15. Actual Costs Inconsistent With Statutory Provisions • The Data for the Following Slides were taken from NCCI Findings Presented to the Florida Governor’s Workers Compensation Study Commission in June, 2002 • Shows Actual Costs For Claims in Florida Higher than Countrywide even though Statutory Benefit Provisions Among Lowest in Country

16. After Adjusting to Florida’s Payroll Distribution, Florida’s Average Loss Costs Remain the Highest in the RegionCurrent Average Voluntary Pure Loss Costs UsingFlorida’s Payroll Distribution Based on the latest NCCI published rates and loss costs in the various states.

17. FloridaWorkers Compensation System Overview  Three cost drivers have been identified: (1) High frequency of permanent total claims - four times higher than countrywide (2) High medical costs for permanent partial claims - nearly two times higher than countrywide . (3) High medical costs for temporary total claims - 50% higher than countrywide

18. FloridaWorkers Compensation System Overview (Continued …)  Hospital costs are relatively high in Florida according to WCRI studies. Since they generally represent nearly half of the Medical dollar, this is a significant reason for the high Medical costs. Also there is high utilization of non-surgical outpatient hospital services which do not fall under fee schedule.  Physician costs also contribute to the high Medical costs. Although Florida’s Physician Fee schedule is relatively low, there is high utilization of physician services/evaluations & a relatively expensive mix of services being provided. Florida does NOT have unusual types of injuries that would explain the higher costs.  Attorney involvement is significant in Florida and also helps explain the cost drivers. When attorneys are not involved, the difference in claim costs between Florida and countrywide is minimal. When attorneys are involved, the difference in claim size between Florida and countrywide is nearly 40%. Attorneys may contribute to the frequency of PT claims and to increased Medical services.

19. Indemnity Medical Medical Costs Constitute the Majority of Total Losses in Florida Florida Countrywide Average Based on the latest available year of NCCI’s WCSP data. Includes Lost Time and Medical-Only claims.

20. Hospital Prices Are Much Higher Than Non-Hospital Providers for Similar Services An Example: Physical Medicine

21. Permanent Total Costs in Florida Are a Larger Percentage of Total Costs Than Countrywide Florida Countrywide Medical Only Temporary Total Permanent Partial Permanent Total Fatal Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

22. Florida’s Permanent Total Indemnity Average Cost per Case is Comparable to Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

23. Florida’s Permanent Total Medical Average Cost per Case is Lower than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

24. Florida’s Frequency of Permanent Total Claims is Four Times Greater than Countrywide Permanent Total Frequency per 100,000 Workers Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

25. As a Result of a Higher Frequency, Florida’s Total Cost for Permanent Total Claims is More than 3 Times Greater than CountrywidePermanent Total Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data

26. Florida’s Permanent Partial Indemnity Average Cost per Case is Comparable to Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

27. Florida’s Permanent Partial Medical Average Cost per Case is Nearly Two Times Greater than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

28. As a Result of Higher Medical Costs, Florida’s Total Cost for Permanent Partial Claims is More than 25% Higher than Countrywide Permanent Partial Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data

29. Florida’s Temporary Total Indemnity Average Cost per Case is Slightly Higher than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

30. Florida’s Temporary Total Medical Average Cost per Case is More than 50% Higher than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states)

31. As a Result of Higher Medical Costs, Florida’s Total Cost for Temporary Total Claims is 40% Higher than Countrywide Temporary Total Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data.

32. Attorney Involvement Has a Bigger Impact in Florida Than Countrywide - Driving Up Indemnity & Medical Costs Avg Cost per Case -Indemnity & Medical Combined CW FL CW FL Based on NCCI’s Detailed Claim Information database for 1998.

33. Attorney Involvement Helps Explain Florida’s Higher Costs  Attorney involvement is significant in Florida (40% of lost time claims) and begins early in claim life-cycle which explains the cost drivers shown on the prior slides.  When attorneys are not involved, the difference in claim costs between Florida and countrywide is minimal.  When attorneys are involved, the difference in claim size between Florida and countrywide is nearly 40%. Both Medical and Indemnity costs are impacted.  This helps explain the high Medical costs in the prior slides.