Fiscal Consequences Of The Great Recession on New Normal

Transcription

1 Impact Of The Great Recession On Workers Compensation Outline What if this recovery is very different from past recoveries? What if very different approaches are required for state programs? What might that mean for WC systems?

2 Past Recessions: Always Return To Normal 150 Employment (millions) The Great Recession: What Type Of Recovery? Employment (millions) V-, U- Shaped?

3 Jagged Checkmark Recovery: Back To A New Normal Employment (millions) Household Debt Soared ? 2016 Total Household Debt Outstanding (trillions) Jan-70 Jan-73 Jan-76 Jan-79 Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06 Jan-09

4 Expansion Of Credit Fueled Big Bubbles Pre-Great Recession, credit-worthiness and default risk was too-often often over-estimated estimated Over-extension extension of credit led to... Exaggerated the demand for Consumer goods Housing Financial assets (stocks) Why A New Normal Is Possible Exaggerated levels of demand led to Over-building of housing, factories, shopping centers, etc. Inflated asset prices (housing, stocks) Inflated tax revenues But this was pseudo-demand Total demand = real demand + pseudo-demand demand New Normal based on real demand Lower than the old peak ( old( normal )

5 The New Normal Discounts The Pre-bubble Pseudo-Demand Employment (millions) Outline What if this recovery is very different from past recoveries? What if very different approaches are required for state programs? What might that mean for WC systems?

6 Why New Approaches May Be Needed The New Normal means Slower recovery & lower revenues for most public and private entities Fiscal issues and job growth dominate state policy debates The New Normal may require structural changes in public programs, including WC Big headwinds challenge state programs unprecedented in the past 70 years States tend to sort into job winners and losers Job Growth: The Principal Policy Debate Employment (millions)

7 Forces Shaping State Programs Lower revenues in the New Normal shape public programs Job growth may be the voters top priority But unprecedented fiscal headwinds Past gov t t financial commitments limit budget flexibility Aging baby boomers International competition Immigration trends and policies Political polarization and paralysis Reduced federal funding for states Unfunded State And Local Government Commitments Limit Flexibility Unfunded public pension liabilities 2008 $500 billion in state programs Unfunded retiree health benefits 2008 $550 billion in state programs Deferred maintenance on public infrastructure Bonded debt

8 Outline What if this recovery is very different from past recoveries? What if very different approaches are required for state programs? What might that mean for WC systems? Implications Of New Normal And Fiscal Headwinds For State Governments Public/private entities have smaller revenues Winning states have job growth Reduce unnecessary costs in public programs to fuel job growth Losing states do not materially reduce unnecessary costs Job growth muted Borrow from future taxpayers

9 Implications Of New Normal For WC Systems WC public policy debates focus on Fiscal stress Eliminating unnecessary costs Large numbers of longer-term unemployed Implications Of New Normal For WC Systems State Fiscal Stress Lower revenues for state agency Especially if funded from general revenues Doing more with less Opportunities for consolidation? Agency functions Across agencies Use of multi-state alliances to achieve economies of scale

10 Reducing Unnecessary Costs: Examples From WCRI CompScope Benchmarks Unnecessary medical care Unnecessarily high (low) medical prices Unnecessarily high (low) income benefits Unnecessary litigation and litigation costs Unnecessary regulatory compliance costs Unnecessary delays in return to work Might There Be More Unnecessary Surgery In States With Higher Surgery Rates? 50% % Of Disc Cases With Back Surgery 40% 30% 20% 10% 0% CA TX FL PA MD MA IL CT WI MI LA GA IN NC AR TN Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment

11 More Frequent Use Of MRIs, Inconsistent With Evidence-Based Guidelines % Of Nonspecific Low Back Pain Cases With MRIs 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% MA WI CT MD CA IN MI GA PA IL TX NC TN FL LA AR Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment Pain Management Injections Used Twice As Often In IN, GA Vs. CT, MA % Of Disc Cases With Pain Management Injections 70% 60% 50% 40% 30% 20% 10% 0% CT MA MI CA MD TX PA FL LA TN NC WI AR IL GA IN Claims With > 7 Days Of Lost Time In 16 States, Up To 12 Months Of Medical Treatment

12 Average Number Of Pills Per Claim With Rx Higher In LA And TX Average Number Of Pills Per Claim With Rx NJ MI MA WI IL IN IA TN PA MD NC NY* FL CA* TX LA Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting Pharmacy Reimbursements % Of Claims With Rx That Had Muscle Relaxants Diverse Prescribing Practices Example: Muscle Relaxants 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% IA IL WI IN PA NJ MI MA NY* NC TN TX CA* MD FL LA Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting Pharmacy Reimbursements

13 Physician Dispensing Rx Drugs Most Common In IL, MD, MI & FL % Of All Rx That Were Dispensed By Physicians 60% 50% 40% 30% 20% 10% 0% MA NY TX WI IA LA NC TN IN NJ PA IL MD MI FL CA* Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *Prior To Law Change That Reduced Physician Dispensing Physician-Dispensers Received Higher Prices Than Pharmacies For Same Rx: FL Example Top 7 Drugs % Of Rx Dispensed By Physician Price Per Pill In Florida Physician Pharmacy % Diff. Hydrocodone-Acetamin. (Vicodin ) 12% $0.96 $ % Ibuprofen (Motrin ) 47% $0.49 $ % Cyclobenzaprine HCl (Flexeril ) 33% $1.33 $ % Naproxen (Aleve ) 49% $1.58 $ % Propoxyphene-N N APAP (Darvocet ) 19% $1.00 $ % Carisoprodol (Soma ) 54% $3.05 $ % Ranitidine HCl (Zantac )* 95% $3.15 $ % *This drug was available over-the-counter 35 cents per pill (Source: Walgreens.com, 10/28/2009, bottle of 24 pills of Zantac 150mg)

14 Reducing Unnecessary Costs: Areas To Examine Unnecessary medical care Unnecessarily high (low) medical prices Unnecessarily high (low) income benefits Unnecessary litigation and litigation costs Unnecessary regulatory compliance costs Unnecessary delays in return to work 43 States Regulated Nonhospital Prices In 2009 Regulation No Regulation

15 Most Nonhospital Fee Schedules Were 40% To 90% Above Medicare In 2009 % Greater Than State Medicare % 200% 175% 150% 125% 100% 75% 50% 25% 0% MA FL CA MD NY HI NC WV UT MI PA SC KY CO OK OH TX VT KS AR SD NM WA LA ME MN GA TN MS WY AL ND AZ CT NE MT OR NV ID DE IL AK Source: Benchmarks For Designing WC Medical Fee Schedules: 2009 Vicodin Costs Twice As Much In LA As In MA, Why? $0.70 Average Price Per Pill Paid To Pharmacies $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 MA PA WI CA* MI FL IA MD NJ TN IL IN NC TX NY* LA Claims With > 7 Days Of Lost Time, Injuries From October 2005 To September 2006, Prescriptions Filled Through March 2007 *CA And NY Data Before Major Statutory Changes Affecting Pharmacy Reimbursements

16 Hospital Inpatient Fee Schedules Per Diem Rates Range Of Per Diem Rates (2009) Minimum Median Maximum Medical Stay $1,186 $1,646 $8,906 Surgical Stay $1,338 $2,059 $8,906 Rates are from the Guide for Policymakers, calculated for a large hospital ( beds) in a large city in 9 states. Per diem rates are for the first two days of the inpatient stay. Hospital Inpatient Fee Schedules DRG Rates Range Of DRG Rates 2009 Hernia Procedures (DRG 355) Knee Procedures (DRG 489) Back & Neck Procedures (DRG 491) 13-State Median $7,878 $9,473 $7,662 Georgia $7,459 $8,969 $7,254 Illinois $18,701 $30,185 $16,524 Rates are from the Guide for Policymakers, calculated for a large hospital ( beds) in a large city.

17 Reducing Unnecessary Costs: Areas To Examine Unnecessary medical care Unnecessarily high (low) medical prices Unnecessarily high (low) income benefits Unnecessary litigation and litigation costs Unnecessary regulatory compliance costs Unnecessary delays in return to work Might There Be Unnecessary Complexity In Dispute Resolution? Defense Attorney Payment/Claim $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 MD IL IN MA* TN NC WI TX MI* IA PA* FL CA MN LA* 2005/08 Claims With > 7 Days Of Lost Time With Defense Attorney Payment > $500 (Indexed), Adjusted *Wage-Loss Benefit System

18 Might Some Attorney Involvement Be Unnecessary? 40 % Of Claims TX WI IN MN IA MA MI PA NC LA IL FL CA TN MD Claims With Defense Attorney Payments > $500 As A % Of 2005/08 Claims With > 7 Days Of Lost Time, Adjusted For Injury/Industry Mix Might Some Medical-Legal Expense Be Unnecessary? $2,500 Average Medical-Legal Expense/Claim $2,000 $1,500 $1,000 $500 $0 IA NC MA FL TN TX IN MD MI IL WI LA MN CA PA 2005/08 Claims With > 7 Days Of Lost Time With Medical- Legal Expenses, Adjusted For Injury/Industry Mix

19 Implications Of New Normal For WC Systems WC public policy debates focus on Fiscal stress Eliminating unnecessary costs Large numbers of longer-term unemployed Unprecedented Numbers Of Workers Suffer Long Periods Away From Work Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Median Duration Of Unemployment (weeks)

20 7 Million Workers Away From Work For More Than 6 Months Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 # Of Workers Unemployed > 6 Months (millions) Implications Of New Normal For WC Systems Larger numbers of long-term unemployed Standards for terminating temporary disability benefits Adequacy of income benefits for long-term unemployed Fairness of lump sums for long-term unemployed

21 Great Recession May Require Structural Adjustments In WC Systems May not return to old normal as in most recessions Most organizations return to a lower level of revenues, including state revenues Successful organizations reduce unnecessary costs Defined as costs borne by employers that do not improve outcomes for injured workers Successful states see job growth