For most of the United States, workers’ compensation rates are on the rise. This is driven by high medical costs, the low-interest-rate environment and the general unprofitability of the workers’ compensation industry. But this is just one of the obstacles facing the workers’ comp industry. Below are the top ten issues facing the industry:
1.The Affordable Health Care Act (AHCA)
There has been much speculation about the impact that that ACHA will have on workers’ compensation. Many feel that it will increase leakage from group health to workers’ compensation, others feel it will have the opposite effect. Though research shows modest changes, it is still too early to determine the ACHA’s effect on worker’s compensation.
2. Not Enough Premium Growth to Cover Costs
According to the annual Compensation Planning Survey by Buck Consultants, the average U.S. salary increases for 2014 held steady at 3% for the past two years in a row, but pay rises still remained at about one percentage point below pre-recession levels. Low to moderate pay wages hurt the workers’ compensation market. “Salary stagnation or low growth of wages will have a telling impact on the workers’ comp industry in the future for the simple reason that payroll growth is necessary in order to have premium growth,” says John Leonard, president and CEO of MEMIC, a Super Regional workers’ compensation specialist insurer. If wages continue to stay low, soon there will not be enough premium growth to cover the costs associated with the medical component of the claim dollar.
3. The Lack of Technology
The workers’ compensation industry is lagging behind other industries when it comes to the use of technology. When it comes to technological innovations, the health care industry’s advancements dwarf anything that’s developed in the workers’ comp industry for years, says Thomas Lynch, founder and CEO of Lynch Ryan & Associates Inc., a management consulting firm for workers’ compensation cost control. Experts believe that the workers’ compensation industry must start using technology and align itself with the rest of the health care system to avoid rising costs. “Even now, today, the usual way is that when you have a claim, you’ll go online and file a report online or you’ll make a phone call. Why couldn’t you take out your smartphone, have a voice activated app that could allow you to report directly into your carrier’s system which would, in real time, display for a claims adjuster?” Lynch says. We can’t do that now and yet we can do it in other areas.”
4. Prescription Pill Addiction
According to Joseph Paduda, principal of Health Strategy Associates LLC, a national consulting firm specializing in managed care for workers’ compensation and group health, the biggest issue facing the industry for years to come is the long-term use of opioids. “There are probably more than 200,000 workers’ comp claimants who have been on a high dose of opioids for more than six months. The vast majority of those are addicted,” he says. Paduda says that usually these claimants don’t go back to work. “Therefore, their claims are going to continue and that runs up employers’ costs, and taxpayers’ costs, quite significantly,”
5. The legalization of Marijuana
Even though marijuana has been legalized in 20 states for medical use, it is still considered an illegal substance under federal law. The problem for the workers’ compensation industry is that there is no proof that medical marijuana is effective in treating workers. This is a huge issue and what the industry is buzzing about, even though there has been no claim activity to date. “Medical marijuana is a tempest in a teapot,” says Paduda.
6. Manufacturing jobs
Thanks to falling domestic natural gas prices, global manufacturing jobs are on the rise in the United States. This is great news for our economy but as new workers enter the manufacturing industry, there is a higher chance of work-related injuries. “The reality of it is studies confirm that new workers are more subject to injury than experienced workers,” Leonard says. “There is a potential for an uptick in terms of frequency brought on by the expansion of manufacturing for that simple reason alone, the influx of new and perhaps untrained workers taking on these jobs as the economy expands.”
7. Safety in the Workplace
While workplace safety has improved over the years, there are still areas in certain industries where accidents happen because people are trying to cut corners. “OSHA is focusing on working with the Justice Department and people are going to jail for doing things that are willfully unsafe in the workplace – where people are getting killed,” says Lynch.
8. The Rise in Mobile Workforce
According to Global Workplace Analytics, the mobile workforce has risen to 80% since 2005. This presents a new issue to workers’ compensation insurers. “If you consider that in 2013, 26 percent of all automobile crashes in the United States involved the use of a cellphone that brings home the idea that if you’re working in a building, the employer can control a lot of things. But once you leave that building and get into your own little car or your employer’s car and you drive somewhere, that arm of control isn’t quite there like it used to be,” says Lynch.
9.The Expiration of Terrorism Risk Insurance
The Terrorism Risk Insurance Program Reauthorization Act will expire at the end of this year. Leonard says this this is essential to the workers’ comp industry because, “you cannot, in workers’ comp, tell somebody that your injury isn’t covered because it resulted from a terrorist attack. That’s just not the way the statue reads. We cover you for any and all workplace injuries” he says. Without the federal backstop for terrorism coverage, Leonard warns that “it would be catastrophic to the insurance industry and it would have major negative impact on the U.S. economy.”
10. Workforce Demographics
While many would think that the aging workforce poses a concern, experts see the younger generation as a growing concern. “They are not participating in the labor force the way that they used to. Their labor force participation rates are down. Many of them are not even looking for work. Many do not have job skills or can’t pass a criminal background check or a drug test. We are simply not getting the flow of young and vibrant workers into the workforce like we used to.” says chief economist Harry Shuford.