Tag Archives: bureaucracy

How Bureaucracy Drives WC Costs

Workers’ compensation is one of the most highly regulated lines of insurance. Every form filed and every payment transaction is an opportunity for a penalty. Claims can stay open for 30 years or longer, leading to thousands of transactions on a single claim. Each state presents different sets of compliance rules for payers to follow. This bureaucracy is adding significant cost to the workers’ compensation system, but is it improving the delivery of benefits to injured workers?

Lack of Uniformity

Workers’ compensation is regulated at the state level, which means every state has its own set of laws and rules governing the delivery of indemnity and medical benefits to injured workers. This state-by-state variation also exists in the behind-the-scenes reporting of data. Most states now require some level of electronic data interchange (EDI) from the payers (carriers or self-insured employers). There is no common template between the states; therefore carriers must set up separate data feeds for each state. This is made even more complex when you factor in the multiple sources from which payers must gather this data for their EDI reporting. Data sources include employers, bill review and utilization review vendors. The data from all these vendors must be combined into a single data feed to the states. If states change the data reporting fields, each of the vendors in the chain must also make changes to their feeds.

Variation also exists in the forms that must be filed and notices that must be posted in the workplaces. This means that payers must constantly monitor and update the various state requirements to ensure they stay in full compliance with the regulations.

Unnecessary Burden

Much of the workers’ compensation compliance efforts focus on the collection of data, which is ultimately transmitted to the states. The states want this information to monitor the system and ensure it is operating correctly, but is all this data necessary? Some states provide significant analytical reports on their workers’ compensation systems, but many do little with the data that they collect. In a world concerned about cyber risk, collecting and transmitting claims data creates a significant risk of a breach. If the data is not being used by the states, the risk associated with collecting and transmitting it seems unnecessary.

Another complication is that there are multiple regulators involved in the system for oversight in each jurisdiction. Too often, this means payers have to provide the same information to multiple parties because information sent to the state Department of Insurance is not shared with the state Division of Workers’ Compensation and vice versa.

Some regulation is also outdated based on current technology. Certain states require the physical claims files to be handled within that state. However, with many payers now going paperless, there are no physical claims files to provide. Other states require checks to be issued from a bank within those states. Electronic banking makes this requirement obsolete.

How Is This Driving Costs?

All payers have a significant amount of staffing and other resources devoted to compliance efforts. From designing systems to gathering and entering data, this is a very labor-intensive process. There have not been any studies on the actual costs to the system from these compliance efforts, but they easily equate to millions of dollars each year.

States also impose penalties for a variety of things, including late filing of forms and late and improper payment of benefits. The EDI process makes it possible for these penalties to be automated, but that issue raises the question of the purpose of the penalties altogether. These penalties are issued on a strict liability basis. In other words, either the form was filed in a timely manner or it was not. A payer could be 99% compliant on one million records, but they would be automatically penalized for the 1% of records that were incorrect. In this scenario, are the penalties encouraging compliance, or are they simply a source of revenue for the state? A fairer system would acknowledge where compliance efforts are being made. Rather than penalize every payer for every error, use the penalties for those that fall below certain compliance thresholds (say, 80% or 90% compliance).

The laws themselves can be vague and open to interpretation, which leads to unnecessary litigation expenses. Terms such as “reasonable” and “usual and customary” are intentionally vague, and often states will not provide further definition of these terms.

How Can We Improve?

One of the goals of workers’ compensation regulations is to ensure that injured workers are paid benefits in a timely manner at the correct rate and that they have access to appropriate medical treatment. There was a time when payers had offices located in most states, with adjusters handling only that state. Now, with most payers utilizing multi-state adjusters, payers must be constantly training and educating their adjusters to ensure that they understand all of the nuisances of the different states that they handle.

The ability to give input to regulators is also invaluable, and payers should seek opportunities to engage with organizations to create positive change. Groups such as the International Association of Industrial Accident Boards and Commissions (IAIABC) and the Southern Association of Workers’ Compensation Administrators (SAWCA) provide the opportunity for workers’ compensation stakeholders to interact with regulators on important issues and also provides the opportunity to seek uniformity where it makes sense (EDI, for example).

There needs to be better transparency and communication between all parties in the rule-making process so that regulators have a better understanding of the impact these rules have on payers and the effort required to achieve compliance.

Developing standards in technology would be helpful for both the payers and the states. If your systems cannot effectively communicate with the other systems, you cannot be efficient. Upgrading technology across the industry, particularly on the regulatory side, has to become a priority.

Finally, we need to give any statutory reforms time to make an impact before changing them again because the constant change adds to confusion and drives costs. In the last 10 years, there have been more than 9,000 bills introduced in various jurisdictions related to workers’ compensation. Of those, about 1,000 have actually been turned into law. People expect that these reforms will produce the desired results immediately, when in reality these things often take time to reach their full impact.

These issues were discussed in depth during an “Out Front Ideas With Kimberly and Mark” webinar on Feb. 9, 2016. View the archived webinar at http://www.outfrontideas.com/archives/.

Can Insurers Move at the Speed of Change?

Chances are you are currently or soon to be engaged in the annual planning cycle, taking stock of the year and anticipating your goals and targets for 2016.

Annual planning feels anachronistic in a world where businesses survive only by operating at least at the speed of change, and where constant iteration is the order of the day. But annual planning does at least provide the opportunity to take stock and set early New Year’s resolutions. It’s useful to hit the “pause button” and remove yourselves from daily operational tactics to reflect on business aspirations and how to make them real.

The fact is, more and more top talent in the start-up and technology sectors is taking aim at the insurance sector, and sees it as ripe for disruption. This is obvious in one-to-one conversations I have had recently with senior executives, at incubator demo days and at investor pitch presentations. It’s apparent in the intensity of interest in driverless cars, the advances in the sharing economy, the number (and quality) of new entrants who are providing friendlier and more transparent access to insurance quotes than ever and in the sheer volume of well-funded, highly valued fintech products being developed for the under-40 crowd.

That the insurance sector has a metaphorical bull’s-eye on its back should come as no surprise. An outsider not steeped in status quo belief systems about how insurance products are created, how distribution works, how commissions are paid and how clients are served can easily recognize that as a whole the industry is out of step with consumer wants and needs, the massive shift underway in who controls the economy (hint: it’s not the Boomers) and the bigger and newer opportunities technology makes possible. While there are certainly outliers at both ends of the spectrum, and an apparent pick-up in tech investment and experimentation among traditional players, there is considerable room to accelerate digital transformation in 2016. It’s an imperative.

So here’s the question: Are you positioned to make meaningful progress? Here are four principles essential to digital transformation and performance against which to answer that question:

  • The insurance business is about people, not policies. Digital transformation is grounded in client-centricity. Is that emphasis a “check the box” or do you really practice it? Language is a mirror of a culture and belief system, and so it is when it comes to a company’s culture, as well. It’s hard to imagine that any insurance business referring to its clients – the people who keep you in business – as “policies,” “lives” or “gross premium dollars” can claim to be client-centric. What language are you speaking?
  • Time is the most valuable currency. The return on time is compounded or devalued by speed of execution. So, what’s your sense of urgency? I was speaking with a fintech founder recently about the company’s branding strategy, and on seeing his disbelieving look as I shared that it can take six months or a year to develop and launch a brand in a legacy business environment, we cut the cycle for this start-up’s brand development effort down to a couple of months. And we were left with a high-quality, thorough method. The absence of bureaucracy, the sheer will to win and the focus on getting things done quickly and with quality is an asset whose absence cannot be rationalized away by those who plan to thrive in the new economy.
  • Self-awareness is step one to transformation. Do the insurance leaders you know really get what their position is in a morphing marketplace? As an independent adviser, consultant and angel investor, I see a good swath of start-ups and thought leaders whose ambitions and actions form a mosaic of trends and oncoming disruptions. An organization lacking collective knowledge and understanding of the insurance sector, including new and non-obvious entrants, will have a tough time redefining its direction. And is the internal response, “Oh, the regulators will never go for that”? Or are you anticipating the reality of disruptive change that is already spreading across insurance verticals from P&C to health, life, retirement and commercial products?
  • What gets measured gets done. And the wrong metrics will suffocate new business opportunities and misdirect resources. Have you challenged the measures of digital success? It’s also true that the wrong timing to read what may well be the right metrics will also stifle new business opportunities. If you are not revisiting your traditional scorecards, and paying real-time attention to the business model drivers you want to achieve — vs. merely monitoring and managing to the monthly bottom-line results — the benefits of digital transformation will elude you.

At any given hour, “now” will never feel like the best time to step out of the complexity of daily operations so you can re-frame your business strategy and make digital transformation happen. Aligning people, process, technology and investment dollars is where the re-framing should manifest itself. And now is a great time, and an urgent time, as you begin to anticipate 2016.

The clock is ticking. And the broader digital ecosystem is expanding, faster and faster.