For 2014, U.S. salary increases are holding steady at 3%. However, pay raises are just one percentage point above the levels seen prior to the recession, according to the annual Compensation Planning Survey by Buck Consultants.
That's a challenge facing the workers' compensation market.
"Salary stagnation or low growth of wages will have a telling impact on the workers' comp industry in the future for the simple reason that payroll growth is necessary in order to have premium growth," says John Leonard, president and CEO of MEMIC, a Super Regional workers' compensation specialist insurer.
He goes on to say that future workers' compensation insurers will not see enough premium growth to cover all medical costs.
Currently, opioid abuse is the biggest issue facing the workers' compensation industry. According, to Joseph Paduda, principal of Health Strategy Associates LLC, that problem will continue for a long time.
"There are probably more than 200,000 workers' comp claimants who have been on a high dose of opioids for more than six months. The vast majority of those are addicted," he says.
The industry has recently been successful at preventing inappropriate use of the drug for new claims. However, its track record with long-term users has been poor.
Claimants who have become dependent on opioids are not returning to work. "Therefore, their claims are going to continue and that runs up employers' costs, and taxpayers' costs, quite significantly," Paduda says.
Also, some of those claimants are selling the drug, rather than taking it themselves. "The data indicates that about 19 percent of claimants who are prescribed opioids, when they're drug tested, there's no evidence of the drug in their urine," he says. That means that they're selling the drug illegally.
Marijuana At The Workplace
The use of marijuana for medicinal reasons seems to be gaining popular acceptance. That's going to pose challenges for workers' compensation insurance companies.
For starters, there's a disconnect between federal and state laws. Federal law still lists marijuana as a Schedule I drug under the Controlled Substances Act. In contrast, 20 states and the District of Columbia allow medicinal marijuana use.
Also, there is no concrete evidence that medical marijuana will be successful in treating injured workers.
"In other words, there's a lot of commentary regarding it but there's no empirical evidence to support that it actually is effective in treating conditions that we see in workers' compensation," according to MEMIC's Leonard. "It's somewhat of a mystery right now to many of us who handle this line of insurance."
Risks Posed By Acts Of Terrorism
The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) will expire on Dec. 31 of this year unless Congress reauthorizes it. This is a cause of concern for many stakeholders in the workers' compensation insurance industry.
"TRIA is absolutely essential to the continuation of worker's comp insurance," says MEMIC's Leonard. "There's no question, but it has to be renewed in some form."
TRIS mandates that business insurers offer terrorism coverage for certain types of insurance. It also provides those insurers with a backstop: The federal government will help them cover losses in the event of a terrorist attack.
"The problem that we have with TRIA right now it it's viewed as an insurance industry problem. That's not the entire story. This is an economic problem for the United States," Leonard says. "Absent the renewal of TRIA, it will have a major impact on the economy of the United States going forward."
Certainly, there are a number of reasons to be optimistic about the future of the workers' compensation insurance industry. However, the sector still faces a series of challenges in the days ahead.