SC approves 7.4% decrease in loss costs

The South Carolina Department of Insurance has approved NCCI's loss cost filing of -7.4%, effective September 1, 2014. South Carolina is among several states in the southeast benefiting from improved combined ratios and stable claims frequency.

Accident-year combined ratios in the state have improved in each of the past three years, from 117% in 2010 to 112% in 2011, and 102% in 2012. Also, workers' compensation premium volume continues to increase in South Carolina, from $533 million in 2010 to $643 million in 2013, and the number of workers' comp insurers has increased from 272 in 2011 to 288 in 2013.

The recent gains in South Carolina reflect the improving picture nationwide, characterized by increasing premium volume, improving combined ratios, and declining claims frequency. NCCI reports rates/loss costs declined -1.4% in Arkansas, -5.1% in Louisiana, -6.95% in Tennessee, -7.9% in Kentucky, and -8.8% in West Virginia.

However, North Carolina will see an increase of 0.3%, Georgia an increase of 2.3%, and Virginia an increase of 4.1%. NCCI characterizes the current state of the industry as "balanced." Steve Klingel, the group's president & CEO, says "today, industry costs are largely contained, claims frequency continues to decline, and the system in most states is operating efficiently. In short, the market is operating as it should on behalf of most stakeholders."

Nationwide, the calendar-year combined ratio in 2013 was 101, a seven-point decrease from 2012 and a 14-point decline since 2011. But some troublesome signs remain, among them the slow growth in employment which is impeding robust growth in premiums, and the uncertain impact of the Affordable Care Act on workers' compensation.

It may take at least a couple of years before analysts can confidently assess the impact of healthcare reform. "Frankly, this could go either way. Indeed, healthcare reform may end up being both a plus and a minus for workers' comp carriers," writes Sam Friedman, insurance research leader with Deloitte's Center for Financial Services, in NCCI's Workers Compensation 2014 Issues Report.

While some analysts think broader insurance coverage required by the Affordable Care Act means injured workers will have less of an incentive to use comp benefits for non-work related conditions, others question whether this is in fact the case now. Indeed, NCCI chief actuary Kathy Antonello says it is the workers' comp system that is adept at pushing work-related injuries onto the public health system.

"The long-standing provisions related to Medicare set asides are directly related to concerns of cost shifting from workers compensation to Medicare," she notes in NCCI's Workers Compensation 2014 Issues Report.



NewHeightened concerns about compounded drugs

Compounded drugs account for less than 3% of prescribed medications in workers' compensation but their use is expanding rapidly and prices are skyrocketing, according to a report from Express Scripts, the largest pharmacy benefits manager in the country.

The company reports per-user-per-year costs rose 126% between 2012 and 2013, with the average cost of compounds per prescription around $1,300. Analysts note compounding is growing rapidly in group health and workers' compensation as states have controlled other cost drivers, such as drug repackaging and physician dispensing.

"Even though the absolute percentage of users is small, the doubling in the percentage of injured workers obtaining medications that, on average, cost $1,299.13 per prescription, will undoubtedly impact payers financially," Express Scripts says in its Workers' Compensation 2013 Drug Trend report.

One argument in favor of compounded analgesic drugs is they have the potential to offer pain relief when a commonly used drug does not work, or when a patient cannot tolerate its side effects. But Express Scripts reports that in at least 25% of cases in 2013, injured workers were prescribed compounded medications before they had even tried commonly used drugs.

The difference in price is striking. For instance, the average cost per prescription for compounded versions of diclofenac, a widely used anti-inflammatory drug, was $770 in 2013, versus $46 per prescription for a commercially available alternative. Diclofenac often is compounded in strengths other than those in commercial preparations.

"In the past compounds would typically combine two or three different ingredients. Today, it's not unusual for us to see claims for compounds that combine up to a dozen or more active ingredients," David Calabrese,vice president and chief pharmacy officer at pharmacy benefit manager Catamaran Corp., commented to Business Insurance.

"And that's obviously going to increase the cost of the compound, but simultaneously increase some of the safety concerns that we have relative to these products," he added.

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