From an economic development perspective, the news on workers’ compensation is pretty good. But workers’ compensation is never quite that simple.
The National Council on Compensation Insurance, NCCI, presented its annual smorgasbord of statistics recently to a group of workers’ comp policy wonks. Costs are down, and rates in the voluntary market will go down in 2016.
Like most statistical statements about workers’ comp, the statement above is infuriatingly incomplete until explained. The reduction of 6.2 percent is not a cut in anybody’s insurance premium but rather a decrease in the loss costs upon which premiums are based. Insurance carriers will use this information in setting their premium rates. The voluntary market refers only to conventional insurance companies – not to the large segment of the market covered by individual or group self-insurance programs, or to the Assigned Risk Pool.
This decrease in cost puts New Mexico among the better-performing states. New Mexico’s decrease is bigger than all neighboring states except Texas. This is a selling point for the ever-hopeful industrial recruiters who are forever trying to entice businesses to locate here.
The Assigned Risk Pool or residual market is also doing okay by workers’ comp standards. “ Okay” means nothing awful is happening.
The pool is where a business gets coverage if no insurance company wants to write its policy voluntarily. In bad times, the pool is where small businesses go to die because they can’t afford the insurance. In good times, they might be in the pool for a couple of years but then will find less costly coverage in the voluntary market. The pool is also for businesses that do dangerous work and so are inherently high-risk. If you’re in the pool and you don’t run a skydiving company, your mission is to pester your insurance agent constantly to move you to the voluntary market as soon as possible.
The cost reductions are happening because fewer claims are being filed. That is good news. It means fewer people are being hurt. But for those who do file claims, costs are going up, faster in New Mexico than the national average. Not so good.
These increases are partly due to eccentric state appellate court decisions that increase both claim costs and litigation. There will be attempts to overrule a couple of those decisions by legislation in 2016, if the Governor allows them to be considered in the 30-day session.
The other source of cost increases is medical costs. While NCCI did not analyze the breakdown this year, previous reports have shown that prescription drug costs are the largest cost driver, and addictive pain medications play a big role.
So it’s not surprising that medical marijuana is getting more sympathic consideration. Even staid NCCI notes marijuana might turn out to be cost-effective compared to addictive opioids. One of those appellate court decisions ordered insurers to pay for medical pot when prescribed, and the Workers’ Compensation Administration has developed guidelines to help insurers figure out how to do this.
These ups and downs occur in the context of a moving target – the economy and the shape of the workforce. Fewer claims could be the result of safer workplaces – good — or fewer jobs in the high-risk industries like oil and gas – not good at all. Or – not mentioned or measured by NCCI – unknown effects of the Affordable Care Act, which may be offering workers an alternative source of medical care.
What’s happening is a race between the reduction in the number of claims and the increase in the cost per claim. Right now, the numbers are favorable, but the balance is always precarious. Policy makers shouldn’t use the cost reduction as an excuse to do nothing.
Triple Spaced Again, © New Mexico News Services 2015