Medical costs drive a LOT of casualty insurance costs in the auto, fleet, workers' comp, medical malpractice, and liability lines. The quote above is the only substantive statement in the 38 page report, and the statement itself is questionable.
Granted, I'm biased. As one who grew up in and remains firmly rooted in the healthcare world, I see things thru that lens. That said, my take is the lack of focus on medical is due to a lack of understanding of healthcare, which in turn makes conclusions suspect.
NCCI recently changed its measure of overall medical inflation to a metric that more closely tracks what we're seeing in work comp. The discussion at the link is pretty wonky; suffice it to say that the Personal Healthcare Deflator (PHC) tracks actual workers' comp medical trends much more closely than the Medical CPI. (James Moore wrote on this some time ago) (Click here for graphic)
(source NCCI) You'll note that the PHC Deflator predicts a much lower rate of price inflation than the other more commonly used metrics; PHC does factor in a change in the mix of services, which I'm guessing is a key reason. (In group/Medicare/Medicaid there's been a significant shift in the location of services from hospital to non-hospital providers which has reduced overall costs.)
It's impossible to say how USI came up with their estimate of 6% medical cost inflation; it is possible they used the CPI or some other metric. I've got a query into USI and will update this if/when I hear back.
In the interim, I'd suggest we would be well-served if the industry showed a bit deeper understanding of the key driver of claims costs.
After 30+ years in this industry, I'm still amazed at the superficial understanding of healthcare exhibited by most in work comp. The continued emphasis on network penetration and per-line and per-bill “savings”, the failure by most buyers to force insurers and TPAs to report real outcomes, and the resulting lack of real improvement in health care quality in work comp is appalling.
What does this mean for you?
We'll dig into the drivers of medical costs more this week. It's a bit complicated, as most important things are.
ABOUT THE AUTHOR
Joe Paduda, the principal of Health Strategy Associates and president of CompPharma, is a nationally recognized work comp expert and speaker with considerable expertise in medical and pharmacy management. Joe consults with managed care organizations, providers, insurers, employers, and private equity firms and conducts an annual payer survey on managing work comp pharmacy. In addition to writing the popular and controversial www.ManagedCareMatters.com, he is a founder and contributor of www.HealthWonkReview.com, a collaborative blog on healthcare policy.
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