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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 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 - size of loss distribution • Impact of Frequency Distribution Changes • Caveats/Precautions
Agenda • Recent California WC Reforms
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weekly indemnity benefits over 4 years - Annual cost of living adjustments on Permanent Total & life pension benefits - Repealed primary treating physician presumption (under certain circumstances)
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
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
Agenda • Recent California WC Reforms • Areas of Impact - overall cost level: by provision - payment patterns - size of loss distribution
Historical Payment Patterns • Basis of WCIRB’s Loss Development Projections • Lengthening of Payment Patterns in Late 1990s (particularly medical)
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
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
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
Comparison of Paid Medical 12-to-24 Month Development Factor
Comparison of Paid Medical 84-to-96 Month Development Factor
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
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)
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
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
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
Workers’ Compensation Reform Impacts on Loss Development Patterns Questions?