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Workers' Comp in Trouble Again?

The workers' compensation market is approaching another crisis. In fact, insurer combined ratios mirror those of the late 1980s (in excess of 120 percent) when the financial health and survival of the workers' comp system were in question, according to a recent study by the Washington-based American Academy of Actuaries.

Another survey--this one by the Washington-based National Academy of Social Insurance--found that workers' comp benefit payments and costs were slightly higher in 1998 than in 1997. But, when adjusted for the growing size of the work force and the rising wages of covered workers, benefits and costs continued to decline from their all-time highs in 1992 and 1993.

Even so, industry leaders predict a looming crisis in workers' comp. But the causes this time around and those of a decade ago are different in many ways, according to the actuarial association. In the 1980s, lost costs were rising, the residual market had become a large burden on the voluntary market, and price levels in many states were only beginning to be deregulated.

Now, however, price competition is driving up combined ratios and has dramatically increased the availability of voluntary-market insurance. Employers have benefited from several years of sustained improvement in the affordability of workers' comp coverage, and pressures to increase benefits are emerging.

In addition, the use of managed care in workers' comp was in its infancy in the late 1980s. But now managed care is a mature industry with numerous programs in place.

This time around, the tools for dealing with the worsening workers' comp market are different as well. Existing self-insurance plans and the development of new products have given employers more options for funding their programs. This may allow for future reform initiatives that balance the adequacy of benefits with the affordability of the system, researchers say.

Other industry leaders say that managed care can do more. It has the potential to help workers' comp out of this crisis--that is, if the problems arising from the ineffective use of managed care are addressed. Managed care combined with other interventions, such as loss prevention, fraud detection, and best practices, can bring the workers' comp system back on the road to health again.
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Publication:Risk & Insurance
Date:Aug 1, 2000
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