Like many, Steve Festa, chief claims officer for Reno, Nev.-based EMPLOYERS, has some serious concerns about just how the Affordable Care Act will affect the insurance industry.
And Festa’s biggest concern is how this sweeping healthcare reform will impact workers’ compensation, particularly in California, EMPLOYERS’ biggest market, where new sweeping workers’ comp reforms are just beginning to take hold.
Festa, who was recently promoted to executive vice president and chief operating officer effective August 25, aired out his concerns with Insurance Journal reporter Don Jergler.
Insurance Journal: Can you tell me a little bit about how you feel the Affordable Care Act is going to impact worker’s comp, particularly in California, where we have some new worker’s comp reform laws taking effect?
Steve Festa: Sure, just from a context standpoint, the majority of the business that we have at EMPLOYERS, is in the state of California. We’ve got a good vantage point of California, as well as the other states that we do business in. To be very frank, I’m concerned that the overall impact of the Affordable Care Act on worker’s compensation will be predominately a negative impact, primarily in a couple of areas. The first area which is the area that I am most concerned about is that by adding 30 million or more insured, as the Affordable Care Act is projected to do, over time, that it’s going to lengthen the amount of time it takes for an injured worker to see a medical provider. I think this will be especially true in certain geographic areas of the country and with certain medical specialties.
The other area that I have a concern with respect to the affordable care impact on workers’ compensation is that workers’ compensation does not have the leverage from a pricing standpoint that health insurance does. Workers’ compensation makes up only about two percent of the medical spend in this country. As the Affordable Care Act ramps up, what I look to happen is that the medical provider community will look to leverage and recover some of their profit. I think they’ll lose through the Affordable Care Act from the workers’ compensation community, as well as other payers with less leverage and the cost shifting will occur. We already see today some of the, even before the Affordable Care Act is put in place, we already see some of that today. The WCRI (Workers’ Compensation Research Institute) recently released a study in which two‑thirds of the study states exhibited data in which hospital out‑patient payments related to common surgeries were higher. Frankly, in many cases, substantially higher in workers’ compensation claims than what was seen on group health claims.
IJ: Do you think the Affordable Care Act will cut into the savings expected from California’s workers’ comp reform law, Senate Bill 863, which was passed last year?
Festa: Here’s where I think there’s some potential benefit, but I want to put a caveat on that. Theoretically or conceptually, if the 30 million individuals that, prior to this, didn’t have health coverage now have health coverage, if they leverage that coverage and actually become a healthier population, if that proves to be true, what I would expect to see is some reduced claim duration and cost because of a reduction in comorbidities.
With respect to SB 863, I’ve been very involved in California for the majority of my career, and I’ve seen reform come and I’ve seen reform go. And I’ve seen reform and the impact it’s had and, over a period of time, I see some of the impact of that reform lessening. There are two areas of SB 863 which I think will have the greatest benefit. One is the lien reform that is taking place. We clearly know that when there’s an activation fee required, or a filing fee required, for liens, that it mitigates the number of liens that occurred. Historically, we’ve seen that in California, and especially in Southern California where most of these liens occur.
I expect that to be a positive aspect of SB863. I don’t see that’s related to the Affordable Care Act at all, but I think that impact that will be positive. The other thing that I think is very positive with respect to the new reform that will be at least hopefully in place for some time until it potentially gets whittled away by the case law, but the IME (independent medical review) process that’s in place I think is a positive for the workers’ compensation industry, taking the medical decisions out of the hands of the courts and putting them into the hands of true medical experts, I think, is a positive impact.
IJ: Recent studies have noted opioid and prescription drug abuse in workers’ comp is a growing problem. Now that we’re going to have a lot more insureds, is there a way to anticipate how this greater number of people in the system will affect that abuse and workers’ comp?
Festa: That’s one of those questions that I’m very curious to see what develops with that. Clearly there’s a lot more focus on this issue than there ever has been, even beyond comp. The CDC (Centers for Disease Control) came out with a study a couple of years ago that indicated more people are dying today from prescription overdose than they are from illegal drugs like heroin and cocaine. So it’s not even just a comp problem anymore.
But there are several states that in the past couple of years have recently moved forward with legislation that have had a positive impact on mitigating some of this. Texas is a very good example with their formulary changes that they’ve implemented. Frankly one of the frustrations I had with the final product of the reform in California was that there was nothing in the reform to address this particular issue.
The drugs themselves are expensive but that’s not even where my focus is. Clearly we have statistical data, and the industry does, that support the fact that someone that’s hooked on these opioids is going to have a much more costly claim and it’s going to be much more difficult to get them back to productive mode. And in many cases, that doesn’t happen.
I don’t know what this Affordable Care Act legislation is going to do to this. It potentially opens up the door for more access. There’s no question about it. My bigger concern is, I’d like to see more states, California being one in particular, that do more to try and address this particular issue. Follow the lead that states like Texas and Washington have done in terms of putting in place tighter controls with respect to the prescription of opioid drugs.