Tag Archives: Stephen Koca

2017 California Hospitals Workers’ Compensation Benchmarking Report

The workers’ compensation environment in California has been surprisingly stable over the last several years. Despite this stability, workers’ compensation remains one of the most complex exposures for employers. This study by Milliman’s Richard Lord and Stephen Koca and Keenan’s Bill Poland and Daniel Mattioli provides fundamental healthcare industry benchmarks from which informed decisions related to managing workers’ compensation in California can be made.

How will Prop 46 and ACA affect medical professional liability?

The medical professional liability (MPL) industry experienced sustained profitability in 2013. Profits are likely to continue over the next several years. There are a few market uncertainties like healthcare reform and California’s Proposition 46 that will test insurers’ current business models though. In this article, Milliman consultants Richard Lord and Stephen Koca explain how these issues may affect the MPL industry moving forward.

This excerpt provides some perspective:

Physician shortage?
The huge influx of insured individuals, which is expected to top 30 million by the time ACA is fully implemented in 2016, could lead to a shortage of physicians, who may turn over some of their duties to nurse practitioners or physician assistants. Lacking the same expertise as a physician, these providers may fail to diagnose or misdiagnose some condition. On the other hand, they may form more personal relations with patients, and that has been shown to reduce the likelihood of a lawsuit.

Under collateral-source payment rules, the ACA may result in lower awards, since the cost of future medical care would no longer be included in awards, thereby limiting MPL insurers’ exposure to the cost to future health insurance payments in an award, or it might have only a negligible impact, depending on how it is administered and the courts’ decisions.

These scenarios are actually less than a handful of the dozens of possibilities that can arise from the ACA. Any one of the ACA’s provisions is unlikely to upend MPL insurers’ cost structure, but in tandem, the layers and layers of issues stated or implied in the ACA could tip costs in a direction that might prove difficult to absorb.

The ACA, however, is only one of the uncertainties facing MPL insurers.

The California question
In November, California voters will decide whether the state’s landmark statute, which caps non-economic MPL damages at $250,000, will remain intact, as written. Enacted nearly 40 years ago, California’s Medical Injury Compensation Reform Act (MICRA) has withstood a series of constitutional challenges, the last of which was in 1985.

…But MICRA is now being challenged in a ballot proposal [Proposition 46] that would raise the cap on non-economic damages to more than $1 million.

If enacted, the proposal would raise the cap on any claim that is outstanding as of January 1, 2015. MPL insurers and self-insured entities would see their liability increase for any unsettled claim on their books, as well as future claims. In all likelihood, claim severity would increase, but the frequency of claims would almost certainly rise if litigation were viewed as a more attractive means of compensation than it now is.

This development has far-ranging consequences, given the size of the California market, but it could also signal a change in sentiment if other states decide to follow California’s lead—since California has long been a state that’s a bellwether for social and economic change.

According to the National Conference of State Legislatures, 35 states have some type of cap on medical professional awards. How many states might again follow California’s lead and challenge reforms?

These two articles detail the influence that Proposition 46 will have on the future of MPL insurers and healthcare providers:

CA Proposition 46: The end of an era for noneconomic caps?
CA Proposition 46: Undoing tort reform?

Financial implications of raising California’s MICRA cap

California’s Medical Injury Compensation Reform Act (MICRA) has been the blueprint used by states to reform their medical professional liability (MPL) markets since its enactment in 1976. In part, the landmark legislation helps reduce MPL premiums and increase the availability of coverage for physicians by capping noneconomic damages at $250,000.

A pending ballot initiative in California now aims to increase the cap. In this Best’s Review article by Milliman’s Susan Forray and Stephen Koca, the consultants examine the financial effects an increased cap can have on the state’s MPL industry. They also consider how other states with similar tort reforms may come into the crosshairs.

Here is an excerpt:

Three dozen states have adopted some form of a cap on damages over the years, although in 12 of these states the cap has been overturned or otherwise invalidated, and remains overturned in most of these cases. And while these caps are often less effective than California’s, either because of higher limits or exceptions, they followed MICRA’s lead and reduced costs in many MPL markets.

Texas is perhaps the best example of a state whose MPL premium has been reduced by the effects of a cap on noneconomic damages. MPL premiums in Texas had been in close step with national trends until 2003, the year reforms were enacted in the state. Premiums declined relative to national levels a year after reforms were enacted, and continued to moderate for several years.

While nationwide premium per physician is approximately 25% less than in 2003, MPL premiums in Texas have fallen by more than 60% since that time—a clear demonstration of the impact that reforms have had on the MPL costs in the state, and a warning sign of potential increases that could be seen in California if the cap is increased.

For more perspective on the impact a higher cap would have on MPL claims, read Stephen’s article “The end of an era for noneconomic caps?

California hospitals workers’ compensation benchmarking report

The issues that hospitals and other facilities are facing today are more complex and continuously changing. The risks of providing medical care and the costs of protecting against those risks alone, including the protection of employees from injury or illness in the delivery of that care, require hospitals to look closely at questions related to taking fully insured, partially self-funded, or self-insured positions. As these facilities are well aware, workers’ compensation laws in California make the choice increasingly complex—and important.

Keenan Healthcare and Milliman present the results of the first annual California Hospital Workers’ Compensation and Payroll Benchmarking Survey. This survey and report aim to provide industry-wide benchmarks in terms of the fundamentals from which informed decisions related to workers’ compensation and maintaining appropriate risk can be made: claim frequency and severity, medical and indemnity costs, the allocated loss adjustment expense (ALAE), and the impact of specific factors such as age, occupation, and more.

Cap increases on noneconomic damages would affect California’s MPL market

A potential change to California’s Medical Injury Compensation Reform Act (MICRA) has big implication for the state’s medical professional liability (MPL) market. A ballot initiative this November could ultimately increase the cap on noneconomic damages from $250,000 to approximately $1.1 million in 2015.

This development raises an important question: What impact would a higher cap have on MPL claims? Milliman’s Stephen Koca provides some perspective in his article “The end of an era for noneconomic caps?

Here is an excerpt:

The increase in the cap on noneconomic damages will most assuredly increase the amounts paid to settle or otherwise resolve medical liability claims. It is also likely to increase the number of filed claims, as plaintiff lawyers make customers more aware of the merits of filing or following through with a claim.

And while pinning down an estimate for an increase in the number of claims is speculative, we have only to look to the mid-2000s for an example of a wide swing in claim frequency that has happened in the past. At that time, a drop in the number of claims being filed drove an unprecedented improvement in the financial results of MPL specialty insurers. Some portion of the rapid decrease in claim frequency was almost assuredly related to the interaction of several factors, including improvements in patient safety and risk management, along with increased adoption of disclosure and early offer programs. However, the shift in claim frequency was so significant that it remains largely unexplained to this day.

The ballot initiative is also gaining traction at a time when the Patient Protection and Affordable Care Act (ACA) is changing the way healthcare is delivered in the United States and adding uncertainty to future MPL trends. In a way similar to the likely interaction of several factors that contributed to the decrease in claim frequency last decade, we could see the reverse situation happen soon. The conflux of various factors, including but not limited to the sheer numbers of insured individuals overwhelming the healthcare community, the acuity of formerly uninsured patients, and an increased incentive to file MPL claims could partially overcome the factors that improved claim frequency in the last decade.