Claims integration within the supplemental benefits world
As the insurance industry transitions to being more customer-centric, implementing claims integration will likely become a must-have feature.
Estimating future liabilities for even the most basic line of business involves in-depth analysis of data, expert knowledge of modeling, and professional application of assumptions. Black lung liabilities take reserving to an entirely different level. Black lung compensation is rooted in a complex regulatory and legislative history. The disease itself—pneumoconiosis—involves sophisticated and often conflicting medical and scientific evidence and opinions. Against a backdrop of social and political turbulence is a labyrinth of complex if not incomprehensible data. Not surprisingly, these unusual liabilities require actuarial and case reserving models that are truly unique, applying methodologies that are not used in any other line of business.
Coalmine workers sometimes develop a condition called “coal workers' pneumoconiosis” (CWP), or “black lung disease.” Pneumoconiosis results from inhaling a significant amount of coal dust. Normally, the coal dust is exhaled from the lungs causing no harm. Over time, some particles may become “stuck” in the lungs’ upper lobes and, in sufficient quantities that vary by individual, restrict breathing. For most miners, the condition is not disabling; in a very small number of cases, however, the restrictive lung disease can result in a disabling condition called progressive massive fibrosis (PMF). PMF is a more severe form of CWP and therefore is referred to as “complicated CWP,” in contrast to “simple” CWP, which is not usually disabling in and of itself. Only about 6% of entitled black lung disease claims are identified as PMF.1 Despite this, approval rates in some states are soaring, indicating that benefits are not being paid for workers’ disabilities, but rather as part of a broader social objective.
Although the United States has enacted workers’ compensation laws to protect employees from work-related injuries since 1911,2 there was no federal law compensating coalminers from disabling restrictive lung disease until the late 1960s. The Federal Coal Mine Health and Safety Act of 1969 (Coal Act) was the first federal mechanism designed to compensate black lung claimants. Administered by the Social Security Administration, benefits in those early years of black lung compensation were liberally paid to coalminers who filed claims—with approval rates greatly exceeding those seen today. The Coal Act has been amended several times since its enactment, with the most recent changes occurring in 2010 with the passage of the Patient Protection and Affordable Care Act (ACA), which includes the Byrd Amendment. The Coal Act as amended now provides the following:
The aggregate effect of these changes has been to increase filings and approval rates for black lung claims in recent years (i.e., since 2010). Approval rates have soared from less than 10% in the early 1990s to as high as 30% in some states in the past few years.3 Once awarded, disability benefits, with cost-of-living increases, are paid for life. This is the case even for miners who do not have medical evidence of being actually “disabled.” Upon death, benefits continue to be paid to surviving dependents. This is the case even for miners who did not die as a result of coalmine dust exposure.
These regulatory actions have led to tremendous challenges for coalmine operators and insurance companies that pay for federal black lung claims. Estimating future unpaid claim liabilities for federal black lung benefits has become a very difficult task under this environment. Currently, no statute of limitations exists for claimants to file a federal black lung claim. Once an employee leaves the workforce, that person can file for benefits. If denied, the claimant can refile repeatedly on an unlimited basis. Post-Byrd Amendment, the likelihood of becoming entitled to benefits has greatly increased, as previously discussed.
Complicating matters for self-insured responsible operators, the estimated liabilities are one factor in the DOL's review of collateral requirements. Historically, the collateral requirement was determined by the level of an operator’s open black lung claims. Presumably in an effort to shore up the Trust Fund’s financial health, the DOL is now calculating collateral using, in part, actuarial analyses incorporating DOL-provided assumptions. Despite potentially massive increases from the self-insured operator’s perspective, these collateral increases represent only a very small fraction of the Trust Fund’s total debt.
This brings us back to the enormous challenge of estimating future liabilities for black lung claims.
First, future payments for all reported—or known—claims need to be individually estimated, the result of which is commonly referred to as the case reserve. The case reserve on each claim has three components: estimated future indemnity, medical, and expense payments. For ordinary workers’ compensation claims, individual case reserve estimates can be somewhat tricky simply because the future is unknown. For black lung claims, however, the complexities of case reserving are compounded and a sophisticated model is needed that incorporates all of the following:
In addition to estimating future payments on known claims, actuaries need to estimate future payments on unknown claims—injuries that have occurred but have not yet been reported (IBNR). A key component to actuarial IBNR reserve estimation is reliance upon sound case reserving as described above. In addition, for black lung claims, actuaries also face several other challenges. It is imperative to evaluate assumptions specific to the coalmining operations and not apply universal countrywide assumptions. Further, detailed loss run information along with DOL filing and refiling development data should ideally be combined in order to derive accurate entitlement rate assumptions. This is a complicated and lengthy process. Unique, nonstandard actuarial claim techniques focusing on claim filings and entitlement rates are considered, with an emphasis on post-Byrd Amendment data. Typically, a casualty actuary would not be familiar with the “refiling method,” for example, but this method is frequently used to help estimate black lung IBNR reserves. Implementing this method correctly takes specific black lung expertise. For example, the refiling method accounts for changes in approval rate probabilities based upon FASL factors. As with all actuarial methods used for black lung, an in-depth understanding of the DOL database and its coding, meanings, and limitations is required. Black lung actuarial reserving also requires operator-specific knowledge and claim history to incorporate necessary information such as miner dates of birth, type of work performed, and employment years.
Understanding the legislative and regulatory history, medical evidence, sociopolitical environment, and operational aspects of black lung is essential to estimating claim liabilities related to this exposure. As a result, black lung claim estimation requires experienced claims and actuarial teams to develop the sophisticated models needed to produce appropriate estimates.
2U.S. Workers' Comp. The History of Workers' Compensation. Retrieved September 2, 2020, from https://www.usworkerscomp.com/faq/history-of-workers-compensation.