Hospital Workers’ Compensation Benchmark Study€¦ · Hospital Workers’ Compensation Benchmark...

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Hospital Workers’ Compensation Benchmark Study P R E S E N T E D B Y B E E C H E R C A R L S O N I N S U R A N C E S E R V I C E S

Beecher Carlson is pleased to present this fourth edition of the

Hospital Workers’ Compensation Benchmark Study. We appreciate

the opportunity and strive to continuously demonstrate value and

support for the hospital industry through our efforts in developing this

analysis. We applaud and appreciate the efforts of all participants

and look forward to further discussions around the implementation

and execution of strategies driven by the findings of this Study.

Identifying the key elements that drive organizations’ total cost of risk

and developing strategies to reduce those costs are shared objectives

for the entire industry. We welcome the opportunity to discuss what

this information may mean for your company specifically and to

identify methods and opportunities for reducing claims. The frequency

and severity of claims are the key drivers of costs for workers’

compensation. This Study will provide a variety of methods to

measure and review both. Simply put, if you can have fewer claims

that cost less on average, you will reduce your organization’s overall

costs.

Beyond these foundational measurements, we begin to consider the

frequency of severe claims, as well as the other key performance

indicators specifically related to workers’ compensation costs overall.

SCOPE OF STUDY

The 2013 Benchmark Study includes claim information from 2007

through 2011 and valued in late 2012 representing:

Key Observations

Frequency of claims in

2007 compared to 2011

and as measured against

Payroll is down by 9.6%

and as measured by

Manhour is down by more

than 4%.

Frequency of claims

resulting in lost time from

work or indemnity

payments as measured

against Payroll is down by

33% and as measured by

Manhour is down by 20%

comparing 2007 to 2011.

Claim severity on average

is up by 10% for Non-

Zero Claims over the five

year period.

Claim severity increases

the later the claim is

reported to the carrier or

administrator. An

opportunity exists to

reduce the average cost

per claim by more than

13% by having them

reported within the first

seven days for Lost Time

Claims.

More than 600 hospitals in 41 states

Nearly 650,000 employees

155,000 Non-Zero Claims over the five year period

26,000 Lost Time Claims

More than $1 billion in incurred and $846 million in

paid workers' compensation losses


The Data | Frequency

Frequency per $1 Million Payroll (Non-Zero)

The key factor in reducing the overall cost of workers’ compensation claims is to reduce the frequency at which

those claims occur. The chart above illustrates claim frequency relative to Payroll. Since claims are generally

reported within the same policy year, there’s less of an impact on the “newness” of the data and the typical

claims development as the accident-year matures.

While there is a nearly 28.6% reduction in the frequency of claims relative to Payroll over the five year

period, it is important to take into consideration the increase in Payroll over that same period of time. As the

rate of pay increases, the denominator would also increase thus possibly causing an apparent reduction in the

frequency rate per Payroll.

Frequency per 100,000 Manhours (Non-Zero)

In order to mitigate the impact of increased pay over the five year period, we measured frequency relative

to Manhours worked. This measurement shows a nearly 17% reduction over the five years in frequency of the

Non-Zero Claims. This reduces the likelihood increased pay was responsible for the downward trend and

supports a true reduction in frequency.

28.6% reduction

in frequency per

$1million Payroll

noted between

2007 and 2011.

16.7% reduction in

frequency compared to

Manhours reduces the

likelihood the increase in

pay has a significant

impact and illustrates a

reduction in the frequency

of claims.


Frequency per $1,000,000 Payroll (Lost Time)

Due to the variability between reserving philosophies, reporting requirements and the numerous methods for

handling “medical only” losses, Non-Zero Claims can be a less than accurate measurement of frequency.

While it is important to utilize it for each individual organization, the following analysis of the frequency of

Lost Time Claims may be more helpful in order to provide the greatest insight from the figures considered.

During the same five years, we see a 33% reduction in the frequency of Lost Time Claims from 2007 to 2011

when measured against Payroll, moving from 0.21 Lost Time Claims for every $1 million in Payroll to 0.14

claims.

Frequency per 100,000 Manhours (Lost Time)

Just as with the earlier analysis against Payroll, it is important to consider the impact of increased pay during

that same period of time and measure frequency against Manhours worked.

Similar to the findings in the Non-Zero Claims, the rate of frequency for Lost Time Claims shows a similar

20.3% reduction from 0.59 claims for every 100,000 Manhours worked to 0.47 claims over the five year

period.

Over the same

five year period,

the frequency of

Lost Time claims

is down 33%.

When compared

to Manhours, the

reduction is only

20.3% thus

removing the

possible effect of

increased pay

during the same

time period.


The Data | Severity

Medical inflation, an aging workforce, pharmaceutical costs, Medicare Set-asides, increased obesity; the list

of challenges impacting our efforts to reduce the overall costs is long and difficult. While we strive to reduce

the number and frequency of claims, there is a long list of factors driving the individual costs for each claim

higher and higher.

It is important when evaluating your organization’s losses that all factors be considered. Any one benchmark

or measure considered alone can give a misconception of your loss prevention and mitigation efforts. For

example, some organizations can experience an unexpected increase in severity with few claims but find their

overall costs going down. Thus, none of the factors considered in this study or in your own organization’s

analysis should be evaluated without considering all factors.

In measuring severity, we first analyze the average cost per Non-Zero Claim. Over the five year period, this

figure is just under $7,000 per claim with 2011 being around $5,772. We would expect the most recent year

to be the lowest as these figures are undeveloped actual costs. This lower figure illustrates the “recency” or

“green” nature of the newest policy year.

Average Incurred (Non-Zero)

It is also important to consider the cost allocation between the three claim components; expense, medical and

indemnity. The ratio between these three components is rather consistent over the five years, except for the

indemnity in the most recent loss year. As claims are open longer, the payments tend to increase over time,

including any settlements or payments for lost wages. Thus, we can expect to see all components increase, but

the larger increases will likely be in the indemnity and medical portions.

To reduce the “recency effect” and compare loss years on an apples-to-apples basis, we have developed the

losses using country-wide loss development factors as provided by The National Council on Compensation

Insurance, Inc. (NCCI). The factors allow us to develop present day incurred figures to projected ultimates.


Average Ultimate Severity Limited to $500K

In comparing the ultimate projected severity, there is a 10.2% increase from 2007 at $7,356 per claim to

$8,109 per claim in 2011. However, there is a slight reduction from 2010 to 2011 in the ultimate severity

for Non-Zero Claims.

Loss Rate per $100 Payroll by Year Limited to $500K

To illustrate the importance of the overall picture, we considered and analyzed severity of losses in

conjunction with frequency against a defined exposure base. For this analysis, we consider loss rates relative

to both Payroll and Manhours.

Over the last five years, the Study shows a 20.7% reduction in the rate per Payroll to an ultimate developed

rate of $0.69 per $100 Payroll for 2011.

The 2009 and 2010 projections are nearly identical to the projections in the prior Benchmark Study in 2011.

Average

ultimate severity

is up 10.2%

from 2007

figures; although

2011 is projected

to be slightly

lower than 2010.

While severity is

on the rise since

2007, the

projected

developed loss

rate per Payroll

is down 20.7%

since 2007.


Ultimate Costs Per 100,000 Manhours (Non-Zero Claims)

Again, to mitigate the impact of Payroll increases and the possible dilution of a severity pattern due to higher

compensation, we analyzed a total of costs against 100,000 Manhours for Non-Zero Claims.

In considering loss costs per 100,000 Manhours worked, we find the average cost has gone from $25,149 to

$23,967 over the last five years when developed using NCCI loss development factors. This is a projected

reduction in severity of 7.6%.

There is a projected 7.6%

reduction in Ultimate Severity

over the five years when

measured against Manhours.


94.2%

4.3% 1.5%

0-25K

25-100K

>100K

26.6%

32.6%

40.8%

0-25K

25-100K

>100K

The Data | Frequency of Severity Claims Percent of Total Claim Counts by Size of Incurred Loss (Non-Zero)

When addressing the overall cost of risk, it is essential to clarify and understand what claims are driving your

organization’s costs. In analyzing the losses for the Study, we found that 94% of all Non-Zero Claims had

total incurred values of $25,000 or less.

Incurred Percent of Total Incurred Loss by Size of Incurred Loss (Non-Zero)

This means approximately 6% of all

Non-Zero Claims having incurred

values greater than $25,000 account

for more than 73% of all costs!

As we develop strategies to reduce

costs, this shifts our efforts and focus to

identify the factors that can impact

and reduce the severity of that body

of claims.

Over 94% of all claims have incurred values

less than $25,000.

73.4% of incurred costs for the Non-

Zero claims comes from claims valued

greater than $25,000.


Percent of Lost Time Claims to Non-Zero Claims

As we strive to further identify the body of claims

responsible for the greatest costs and offer the

opportunity to reduce the overall cost of risk, we

look to several key performance indicators that

assist in the analysis of an individual organization’s

loss experience.

It is essential in measuring the frequency of severe

cases to consider those that result in time lost from

work or indemnity payments relative to those that

are medical only, or Non-Zero Claims without

indemnity.

For this year’s Study, we find the ratio to be rather

consistent with prior years’ results. Seventeen

percent of all Non-Zero Claims are Lost Time

Claims where some indemnity dollars were either

paid or incurred.

Percent of Lost Time Costs

It is just as important to recognize the impact those

17% of all claims have on the overall costs.

Approximately 85% of the costs from the five year

period are tied to the Lost Time Claims.

This nearly inverse measure falls very much in line

with the “80-20 Rule” and should assist in directing

efforts for mitigation and cost reduction.

Organizations seeing their ratio of Lost Time

Claims go up can expect overall costs to increase

as well.

Only 17% of the claims involve

Lost Time, but they drive 85% of

all incurred costs.

17%

83%

Lost Time Non-Zero

85%

15%

Lost Time Non-Zero


Average Incurred Losses by Reporting Lag

In addition to the benefits evident in returning employees to work or, just as importantly, keeping them at

work to mitigate the overall cost of risk, there is a clear trend over the last four Studies that indicates the

importance of prompt claims reporting. Every year has provided evidence that claim costs increase

significantly for losses with greater lag time reporting than those addressed early and promptly.

This result is in direct contrast to the expectation that the most catastrophic claims are known and reported

almost immediately. The trend indicates a 22% higher incurred cost for claims reported on day’s three to

seven at $6,709 versus those reported in the first two days which average $5,588.

More importantly, there is at least a 13% increase in the average cost of claims reported in weeks two

through four compared to those in the first seven days. This means nearly 18% of the claims (almost one out

of five) are incurring costs more than 13% higher on average.

While the industry should celebrate that more than 90% of all claims are reported to either the carrier or

Third Party Administrator (TPA) within the first 30 days, this illustrates a population of 10% of claims that

might be less costly if identified and reported earlier. The potential savings should be evaluated by each

organization when you consider that those claims average more than $8,000 in costs each.


The Data | Causation Cause Type Analysis |

Comparison of Total Incurred to Number of Claims By Causation Group

We performed our analysis of accident causation using claims occurring between 1/1/2007 and

12/31/2011. The workers’ compensation cause codes which are captured in Carrier/TPA claims systems are

notorious for presenting systemic data quality issues, and our data quality assessment for this analysis

revealed that reputation to be warranted. The complete set of claims data that we received contained tens of

thousands of different causation codes, many of which were either free-form text, null-valued or

indecipherable. To begin converting this raw data into a more useable format, we eliminated from

consideration all claims which had missing, null or indecipherable values. We then further filtered our dataset

so as to exclude any sources which had provided purely free-form text values for the cause code field.

We recruited the assistance of our loss control consulting team in the code grouping effort. This resulted in the

manual assignment of 790 unique cause code values into one of the following groups: Cut/Puncture,

Environmental, Exposure Incident, Fall/Slip/Trip, Other/Not Specified, Patient Movement, Security/Other

Person, Strain - Cumulative, Strain - Other, Struck by/Struck Against, Tools/Equipment.

A summary of the total incurred values for the five most frequently observed cause groups is displayed in the

table below. We can see from the exhibit below that for the groups shown, patient movement has resulted in

the highest average cost per claim.

Cause Strain-Other Fall/Slip/Trip Patient

Movement

Exposure

Incident

Struck

by/Struck

Against

All Other

Count 23,727 23,242 18,871 14,301 13,203 34,106

Total $229.8M $228.4M $191.1M $12.1M $52.2 $199.3M

Average $9,686 $9,827 $10,127 $844 $3,955 $7,536


Employee Age Analysis

The data we received which is required for computing the employee age variable was fairly complete, and

appeared to be of a reasonably high quality. For this portion of our analysis, we eliminated from

consideration any claims with missing age values as well as any claims which we felt likely had miscoded

employee age values (specifically, those claims with an employee age less than 16 or greater than 89).

We performed our employee age analysis by generating the following trend breakdown by accident year.

Since we defined employee age as being “(date of loss – employee date of birth)/365.25”, we can assume

that these values are decisively known at the time of reporting and therefore do not need to be developed in

any manner to provide valid inferences.

2007 2008 2009 2010 2011

Median 42.95 43.07 43.3 43.78 43.95

Mean 42.48 42.62 42.86 43.29 43.56

41.5

42

42.5

43

43.5

44

44.5


Average Claimant Age by Accident Year

To investigate the spread of employee ages and how they interact with the different cause types, we

generated the following exhibit. This table shows the mean employee age by cause group (defined using the

methodology described earlier) , along with the 25th, 50th and 75th employee age percentiles for each group.

Cause

Employee Age

25th Percentile 50th Percentile

(Median) 75th Percentile Mean

All Other 32.6 43.4 52.4 42.8

Struck by/Struck Against

32.3 43.5 52.8 42.8

Exposure Incident 28.4 36.4 47.0 38.3

Patient Movement 32.1 41.0 49.9 41.3

Fall/Slip/Trip 39.0 49.5 56.6 47.7

Strain—Other 33.0 43.5 52.2 42.8

**We can see from the table above that the Fall/Slip/Trip peril affected a significantly older population of

claimants than did any of the other accident cause types (50% of the Fall/Slip/Trip claimants were over 49.5

years old, and 25% of the Fall/Slip/Trip claimants were over 56.6 years old).

**We can also see that the claimants suffering from Exposure Incident injuries tended to be younger than

other claimants, with 25% of them being younger than 28.4 years old.


The Data | Jurisdiction

Ultimately, many organizations face challenges specific to their individual jurisdictions and locations. Pay

rates, compensation laws, compensability issues and the court system can further impact results and costs.

While there are opportunities still to address all the prior elements, all must be tempered with an awareness

and understanding of the laws and statutes of each state.

To consider the possible impact of each state’s laws, we calculated the average claim severity for all Non-

Zero and Lost Time Claims. Each state’s figures are broken down into paid and outstanding for a total

incurred value and then ranked from highest to lowest in average severity.

Average Non-Zero Incurred (2005-2011)

It is essential that severity, just like in prior discussions, not be considered alone or factored in as one element.

Further, due to the limited volume of claims data in certain states, we have only included states in this analysis

where we had at least 500 Non-Zero Claims and 50 Lost Time Claims.

$2,725 $2,844 $3,177

$2,799 $3,029 $2,957

$3,516 $3,533

$4,080 $4,503

$4,096 $4,305

$4,761 $4,243

$4,834 $4,642

$5,309 $4,919 $5,252 $5,630 $5,768

$5,234 $5,858

$6,428 $7,326 $7,282 $7,316 $7,373

$7,001 $7,188

$9,056 $9,157

$11,179 $8,563

$12,360 $5,437

$104 $353

$315 $767 $557 $665

$317 $575

$550 $163

$588 $737

$388 $1,006

$455 $751

$295 $689

$601 $644 $534

$1,165 $552

$723 $457 $867 $1,027 $1,134

$1,656 $2,287

$1,355 $3,175

$1,268 $4,714

$1,148 $1,172

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000

TX

NV

WV

KY

AR

KS

AZ

UT

TN

CO

MS

MI

CT

NM

FL

MO

IN

PA

AL

VA

GA

SC

ID

WA

NH

OR

MD

LA

OK

NY

MN

IL

WI

CA

AK

ALL

Average Paid Average Outstanding

Average cost of Non-Zero Incurred

claims for all states noted is $6,609.


To eliminate the impact of reserving differences based on specific claims handling criteria in certain regions

and organizations as well as to address those Lost Time Claims driving a majority of the costs, we also

reviewed and analyzed the average costs for Lost Time Claims over the five years.

Average Incurred Lost Time Claim (2005-2011)

$14,747 $17,207 $17,929 $17,185 $17,734

$19,903 $20,968 $20,050

$22,404 $21,456

$23,785 $21,681

$25,940 $25,126 $24,813 $26,692 $27,503 $27,566

$25,640 $24,892

$31,006 $32,871

$28,697 $36,648

$35,487 $30,965

$36,362 $28,511

$36,875 $41,774

$34,968 $44,679

$41,135 $56,110

$26,237

$1,745 $1,833 $2,298 $3,254 $2,720

$2,602 $1,997 $2,983

$2,811 $4,341

$2,784 $5,325

$1,886 $4,279 $5,097

$4,633 $3,955 $4,428 $8,609 $9,392

$5,084 $3,248

$8,461 $1,687 $4,432

$9,343 $6,450

$16,687 $9,622

$7,124 $13,980

$5,023 $10,089

$8,485 $6,634

$0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000

WA

WV

OR

MI

MD

AZ

CT

DC

WI

MO

ID

MT

IN

NV

UT

MS

AL

MN

NY

KY

TN

AK

KS

CO

FL

NM

LA

CA

OK

PA

IL

GA

SC

VA

ALL

Average Paid Average Outstanding

The average incurred Lost Time

claim value is $32,871.

Hospital Workers’ Compensation Benchmark Study€¦ · Hospital Workers’ Compensation Benchmark...

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