Mega Claims in Workers’ Compensation: The NCCI Weighs In

This latest study was held in response to stakeholder suggestions to NCCI that mega claims may be increasing in frequency and severity.
By: | September 17, 2020

As might be expected, head injuries make up a high percentage of mega claims.

The National Council on Compensation Insurance (NCCI) released a new report on August 25 about mega claims in the workers’ compensation system and growth trends associated with the highly uncertain category, revealing that such claims are at a 12-year high.

Advertisement


The report, Countrywide Mega Claims, incorporates claims data from participating state rating bureaus at thresholds of $3 million, $5 million and $10 million in total incurred losses at 2018 cost levels for the 2001 through 2017 accident years at annual evaluations.

The study was held in response to stakeholder suggestions to NCCI that mega claims may be increasing in frequency and severity due to “medical advances, improving mortality patterns particularly for those with serious injuries, [and] increasing prevalence and cost of home health care.”

A 12-Year High

Ryan Voll, a manager and associate actuary for NCCI, that the definition of a mega claim is a “general term meant to convey that we are studying significantly large claims” but that “the selected thresholds balanced, analyzing some of the largest workers’ compensation claims while also considering the number of claims that would be available at each dollar threshold.”

In all, NCCI found that “approximately 4,500 claims from accident year 2001 through 2017 were reported as of December 31, 2018, with incurred loss in excess of $3 million at 2018 cost levels, which is approximately one out of every 2,500 reported indemnity claims. Of those, 57% were between $3 million and $5 million, 33% between $5 million and $10 million and 10% in excess of $10 million.”

These numbers constitute a significant increase in mega claim incidence, especially in 2016 and 2017 during which the 12-year high was established.

Ryan Voll
Manager and Associate Actuary
NCCI

However, NCCI exercises caution in raising the alarm for two primary reasons: First, insurers may be able to identify these claims earlier in the process. Voll explained “an analysis of carrier-specific analytical tools was beyond the scope of the current research, although these tools may help provide an earlier identification of potentially high-cost claims—allowing them to be triaged earlier in the claim handling process.”

Additionally, estimates of ultimate counts of mega claims can be actuarially volatile for relatively immature, meaning recent, years.

The report explained: “For example, if the mega claim count development was to develop at a rate more typical of the past and development on the 2017 year was consistent with that of the average of the latest three years, ultimate 2017 mega claims would be significantly higher and at an all-time high. Conversely, if mega claim count development continues to accelerate, ultimate 2017 mega claims counts would be lower.”

Characteristics of a Mega Claim

The report ties the recent increase in mega claims to the Great Recession, noting that as construction employment plummeted in 2008, so did mega claims. By 2013, the sector began to recover, and mega claims increased in turn.

The construction industry occupies an exorbitant place in the incidence of mega claims, comprising 37% of claims between $3 million and $5 million, 42% of claims between $5 million and $10 million, and 46% of claims above $10 million. This exists in contrast with the fact that, for most states, construction claims account for less than 20% of overall claim volume.

Assessed by the part of the body injured, NCCI chose to delineate the data by the following categories: neck and spine, head and brain, multiple body parts, and all other.

The proportion of each of these categories to the total mega claim count differed for each cost threshold. However, head and brain injuries appeared especially devastating, as one might expect.

Overall, head and brain injuries accounted for 30% of mega claims in excess of $10 million, though such claims comprise less than 5% of all workers’ compensation claims in most states.

Considering the other categories, NCCI noted that the proportion of the “all other” body part category has grown in the last decade.

Cause of injury categories for the purposes of this analysis included: fall/slip, motor vehicle accident, struck by and all other causes. Fall and slip injuries were the leading cause, with 35% of mega claims attributed to these common accidents.

This has remained relatively steady over time.

For the nature of injury, NCCI categorized by concussion/contusion, fracture/crushing/dislocation, multiple injuries and all other injuries. The “all other” category claimed over 50% of mega claims in the first two cost thresholds and remained the most common compared to the other categories in the excess of $10 million threshold.

According to the report, the largest categories within the “all other” injury grouping are amputation/severance, burn/electrical shock, cumulative injury and strain/sprain.

Workers’ Comp Taking on the Brunt of Claims

The workers’ compensation system bears nearly all of the costs associated with mega claims, with only approximately 10% also involving employers’ liability. This was particularly true for New York. A bare sliver of the mega claim pie belongs to employers’ liability only.

Patterns in the recognition of mega claims differ significantly, hence NCCI’s caution that analytical tools could come to bear on eventual mega claim counts. The report emphasizes that many catastrophic claims are recognized as such almost immediately, but others can take years to develop and pierce the $3 million threshold.

Advertisement


NCCI explains in the study that less than half of all claims $3 million or more reach that incurred loss threshold by 18 months, from policy inception, and less than 90% reach that threshold by 126 months, also from policy inception.

They attribute this to medical development that can happen later in the life of a claim, such as a failed surgery.

The report takes a special look at harbinger states California and New York, as well.

In California, mega claim development appears to take a slower pace than other states, which NCCI linked to California’s Senate Bill No. 863, a medical reform bill that reduced claim duration. In New York, mega claims have dropped in the last decade, a change which could be due to the state’s aggressive efforts to reduce opioid use, along with its introduction of medical treatment guidelines.

NCCI continues to study mega claims as part of its Insights web publication. Additional NCCI analysis on mega claims from 2019 can be found here&

Nina Luckman is a business journalist based in New Orleans, focusing primarily on the workers' compensation industry. Over the last several years, Nina has served as Editor of Louisiana Comp Blog, a news site she started in 2014 under the auspices of a group self-insurance fund. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]