6 Questions for Stephen Cooper on NCCI’s WCWMI

Boca Raton, FL (WorkersCompensation.com) -- Those who attended the NCCI AIS in May were treated to a new tool to help gauge and understand inflation as it relates to workers' compensation medicine. We managed to take up some of Senior Economist Stephen Cooper's time to understand how the tool works and what it means for the industry.

Q. NCCI's Workers' Compensation Weighted Medical Price Index (WCWMI) had its coming
out party at this year's Annual Insights Symposium (AIS). In these early stages, what
have you seen in terms of its impact on the industry so far?

A. Thanks, Frank. We just published our second Medical Inflation Insights report and have
received great feedback from stakeholders. We’ve seen a lot of interest in combining both
our data and insights.
We consistently hear from our stakeholders that medical inflation is a top industry concern,
so helping the industry better understand what’s really happening is important to us. That’s
why we created the WCWMI.

Q. What gave NCCI its biggest push to develop the WCWMI?

A. Inflation is not a straightforward topic, and medical inflation is even less so. There are a
number of different publicly available inflation indices to follow. While each one has
differences in coverage and construction, none of them focus specifically on workers'
compensation.

For many years, NCCI highlighted the Personal Health Care (PHC) price index as the most
relevant inflation gauge for workers compensation. It closely matches the high-impact price
changes that NCCI monitors. But the PHC is not a real-time index. To provide our industry
with timely medical inflation insights, NCCI has created the WCWMI. It uses real-time data,
it’s relevant, and it’s ready to roll.

Q. It seems like anyone with a keyboard is currently an expert on inflation, but how does
medical inflation differ from the economic inflation we see every day across the
economy?

A. A classic way of thinking about medical inflation is to take economic inflation and add
several percentage points to it. This relationship of medical inflation trending slightly higher
than economic inflation held for many years. However, this relationship began to weaken
after the Great Recession (2007–2008) and the period of persistently low economic inflation
that followed.

The COVID-19 pandemic complicated that relationship even more. In 2021 and 2022,
economic inflation surged to levels not seen in 40 years, but medical inflation did not follow
the trend. Instead, medical inflation continued to trend near 2%–3% during that period of
heightened economic inflation.

Due to these recent trends, it is imperative to assess medical inflation and economic
inflation—and that's where the Medical Inflation Insights report comes in. Monitoring
developments in both economic and medical inflation provides a deeper picture of the
inflation environment.

Q. The Medical Inflation Insights July report noted an earlier anomalous increase in
durable medical equipment prices. What was behind those increases from 2023
"falling out of the year-over-year calculation"?

A. When discussing inflation, it is important to remember that it is the rate of change in prices
over time, typically measured over a one-year period. Price increases, especially in the
medical space, are not smooth or consistent.

For example, if we see a 1% increase in prices for physician care from December 2022 to
January of 2023, but then prices remain unchanged from January through December, that is
a 1% increase in prices for the year.

However, if in January of 2024, prices remain unchanged again, the year-to-year change in
prices from January to January no longer counts the 1% increase from the previous year. The
year-to-year growth rate will then fall from 1% to 0%, not because prices declined but
simply because more than one year has passed since the increase.

When prices change by a similar amount at a similar time each year, called seasonality,
price increases can be adjusted to account for the changes and give a smoother reading.
Medical care prices do not change at consistent times or by consistent amounts. They’re
also not seasonally adjusted, so we’ll sometimes experience swings in the rate of inflation
due to inconsistent timing. These swings are typically temporary and usually abate within a
few months.

This is one of the key reasons that we release the Medical Inflation Insights report
quarterly. By collecting several months of data at a time, we can more easily decipher
signals from noise in the data.

Q. The July report also mentions a cooling of wages in the long-term care sector. As we
learned at NCCI’s AIS, the workforce is aging. Why would that indicate that we will see
stability in medical wage growth for a while?

A. There are two competing trends to consider when assessing wage growth for the long-term
care sector. The long-term demographic trends supporting growth in the industry will indeed
put upward pressure on wages at the margin.

In the short term, however, wage growth was meaningfully higher than long-term trends for
several years after the pandemic and is now cooling down.

As supply and demand in the labor market come closer to balance in 2024, we will see
upward pressure on wage growth subside while the longer-term trend in the sector will keep
some pressure on.

Q. If I wanted to learn more about medical inflation, where could I go?

A. Glad you asked! There are several different ways to gain more information. To start, you can
always find the latest quarterly Medical Inflation Insights report, and information on other
issues important to the industry, on ncci.com.

In addition, NCCI is hosting a webinar, and we’ll do a deeper dive into medical inflation. It’s
free and open to the entire industry. I’ll also discuss NCCI’s medical price index and reveal
how carriers and other industry stakeholders can build their own index to better track
against their own book of business.

Finally, I’m excited to share that NCCI is launching a State of the Line Podcast in the very
near future.

NCCI’s podcast will feature workers compensation issues that are top of mind for industry
stakeholders, including the economy and medical inflation. Each month, we’ll highlight
NCCI experts like me or pair us with some of the brightest minds across the industry. Stay
tuned—you won’t want to miss it.

Stephen Cooper is NCCI's Executive Director & Senior Economist

Cooper joined NCCI in August 2023 as Executive Director & Senior Economist, leading the Economic Research and Communications Team. The team’s research focuses on economic developments impactful to the workers compensation system, including labor market dynamics, demographics, inflation, interest rates, and state level insights to aid in ratemaking decisions.

Prior to joining NCCI, Cooper was vice president, senior economist for Hartford Investment Management Company, a subsidiary of The Hartford. In this role, he oversaw economic research developing insights to drive alpha generation for portfolio management. He was also a key consultant with external clients on key economic developments, frequently speaking at industry events.

Cooper has MA and BA degrees in economics both from Bowling Green State University.

Share This Article: