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Health care reform mandates may increase workers compensation costs

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Health care reform mandates may increase workers compensation costs

The Patient Protection and Affordable Care Act could increase the price employers pay for workers compensation insurance by influencing underwriters' tabulation of policyholders' payrolls and premiums.

That, however, will depend on certain decisions employers make when complying with the health care reform law's requirements to provide employee health care coverage, according to an NCCI Holdings Inc. analysis of the law.

A workers comp policyholder's premium amount will be affected, for example, by how employers manage money the law mandates that health plan insurers rebate to their customers under certain conditions.

Overall, however, it remains largely unknown how the 2010 law will affect workers comp areas that drive insurance costs, such as medical treatment and indemnity durations, although speculation abounds, several sources said.

“It is vastly unknown,” said Bruce Hockman, executive vice president and workers comp practice leader in Philadelphia for Towers Watson & Co.

“It's going to be years until we have enough data to get rid of as much anecdote and rhetoric as we possibly can to see how (PPACA) is impacting, if at all, the workers comp environment.”

But in a March advisory, Boca Raton, Fla.-based NCCI said that how employers comply with the requirement to provide employee health care coverage under the PPACA “has the potential to affect an employer's workers compensation premium determination.”

The research and rating organization's advisory discusses its existing rules that workers comp insurers in NCCI-rated states must follow when tabulating an employer's payroll.

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An employer's total payroll, resulting from year-end audits by underwriters, helps determine the premium amount policyholders pay for workers comp coverage.

Under the rules the NCCI evaluated, any cash an employer gives an employee as part of their gross wages to buy their own health insurance, say through an exchange, would be considered payroll.

In contrast, payments employers make to a group health plan on behalf of an employee would not be included as payroll when determining workers comp premium.

Under the national health reform law, health insurers must spend a certain percentage of premiums on claims and quality improvement measures or rebate money to their customers.

Whether employers pass those rebates on to employees or apply them to pay future health insurance premiums will play a role in determining their total payroll for workers comp premium determination purposes, NCCI said.

But the NCCI's advisory raises a potential for insurers to unfairly increase an employer's workers compensation insurance premiums even though an insured has not experienced any increase in exposures, said Pam Ferrandino executive vice president and casualty practice leader for Willis North America Inc. in New York.

Any increases would hit employers just as policyholders in many states already are experiencing workers comp rate increases, Ms. Ferrandino said.

So she is in discussions with insurers and weighing developing a policy endorsement or other contract language that would prevent underwriters in all states from collecting additional premium from Willis clients due to changes in how an employer's total payroll is determined, Ms. Ferrandino said.

The rules by NCCI, which provides rating services for 38 states, on what underwriters are to include or exclude when determining an employer's total payroll are not new, said Linda Colbert, NCCI regulatory services manager in Boca Raton, Fla. Rather, NCCI studied the health reform law to see how NCCI's existing rules would affect underwriter payroll determinations.

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NCCI did so to help insurers and agents understand the payroll effect and help employers learn how their future group health insurance purchasing decisions might influence their workers compensation programs, Ms. Colbert said.

NCCI did not look at the law beyond its payroll implications because so much remains unknown about its overall implementation, Ms. Colbert said.

Ms. Ferrandino said the NCCI analysis on rebates concerns her because employers whose employees show health improvements are more likely to receive a rebate, which could increase their payroll and, in turn, raise their workers comp premiums.

“I think it is absolutely wrong that our insureds should have to pay additional premium to a carrier because their (health care) losses were better than expected,” Ms. Ferrandino said.

Several underwriters declined to discuss NCCI's advisory, but NCCI's Ms. Colbert said the rebates could diminish over time as health insurers adjust their practices under the health reform law.

But Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York, said the rebates could continue indefinitely because medical trends constantly shift and health insurers do not know how much they will pay out in claims year after year.

Whether to apply the rebates to future premiums or pass them on to employees will vary by employer, he said.

“More times than not ... (employers) will find a way to give it back,” Mr. Thompson said.