When WorkCompCentral released a report, The Uncompensated Worker, I wrote about how a work injury affects family finances. I applied several realistic work injury scenarios to each state. In 31 states, workers receive a reduction in take-home pay of 15% or more when they’re injured on the job. In half the states, households with two median wage earners—one on work disability and the other working full time—cannot afford to sustain their basic budget.
These findings confirmed what workers’ comp claims adjusters, attorneys and case managers already know: Many injured workers live on the edge of financial collapse.
But the findings are by no means conclusive. The research done for “The Uncompensated Worker” was too limited. I know, because I did it. To really understand the financial experience of being on workers’ comp benefits, one should run not a handful but thousands of scenarios through a statistical analyzer and then compare the data results with actual cases researched through interviews.
The research agendas of the workers’ comp industry rarely involve looking at the worker her or himself.
Instead, the industry has funded research mainly to understand the drivers of claims costs, specifically medical care. This focus can be explained. Over the past 25 or so years, the workers’ comp industry has absorbed a huge rise in medical costs, more and more layers of regulation relating to medical treatment and even more specialties needed to deliver or oversee medical care.
To illustrate the extent of this industrial-medical complex: Nationwide spending on “loss adjustment expense,” a proxy for specialist oversight of claims, has grown annually on average by 9.4% since 1990, while total claims costs have risen on average by 2.5%.
The quality of industry-funded research has improved, because of better data and strong talent pools in places like the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute and the National Council for Compensation Insurance. Their research focuses on cost containment and service delivery. These two themes often intertwine in studies about medications, surgeries or medical provider selection.
It’s time to pay more attention to the worker. Close to a million workers a year lost at least one day from work because of injury. We hardly know them. Bob Wilson of Workerscompensation.com predicts that, in 2016, “The injured worker will be removed from the system entirely. … Culminating a move started some 20 years ago, this final step will bring true efficiency and cost savings to the workers’ comp industry.” Industry research, one might say, has left the worker out the system.
An example of how the worker is removed can be seen in how the WCRI did an analysis of weekly benefit indemnity caps. These caps set a maximum benefit typically related to the state’s average weekly wage. (The methodology has probably not been critiqued by states for generations, despite better wage data and analytical methods.) The WCRI modeled different caps to estimate the number of workers affected. But it did not report on what this meant to workers and their families; for example, by how much their take-home benefits would change.
As it happens, Indiana is one of the worst states for being injured at work; it has close to the stingiest benefits for a brief disability. You are not paid for the first seven calendar days of disability. Benefits for that waiting period are restored only if you remain on disability for 22 calendar days. Take-home pay for someone who is out for two weeks or less will likely be 83% less than what it would have been without injury. An Indianapolis couple, both at the state’s median wage, cannot afford a basic month’s budget for a family of three when one is on extended work disability. These poor results are partly because of Indiana’s benefit cap, which is one of the lowest in the country. The weekly benefit cap used in the report, a 2014 figure, was $650.
Les Boden, a professor at Boston University’s School of Public Health, read a draft of “The Uncompensated Worker.” For years, he has studied the income of injured workers and the adequacy of workers’ compensation benefits. He told me, “Studies have shown that many people with work-related injuries and illnesses don’t receive any workers’ comp benefits. I don’t think that the problem is too little research. It’s political. Unfortunately, workers are invisible in the political process, and businesses threatening to leave the state are not.”
I am not sure how the politics of this issue can change until the strongest research centers in the industry begin to pay attention to the worker.
From the You Can’t Make This Stuff Up Department: Steve Legg took an important step on his path to becoming the director of risk management of Starbucks to avoid having what looked like a bad pun on his business card. He had earned his Associate in Risk Management designation, but that meant his name appeared as Legg-ARM. So, he says, he went on to earn his Chartered Property & Casualty Underwriter (CPCU) designation, because it is listed before ARM. His card now (safely) reads “Steve Legg, CPCU, ARM.”
But I’m jumping into the middle of the story, in this second in our series of Thought Leaders in Action. (The first, with Loren Nickel, director of risk management at Google, is here.)
To begin at the beginning, I’ll provide a summary of Legg’s background, then follow with the story of how he earned his prestigious position, some detail on Starbucks and how it manages risk and some insights from Legg for other risk managers.
Legg, who is 46 years old, has been at the Starbucks headquarters in Seattle since June 1997. His responsibilities include global corporate property and casualty insurance and risk financing for the company. Legg reports to the treasurer of Starbucks and heads a risk management team of 13 professionals, with two-thirds involved in claims management and the balance working in risk financing and risk transfer, its risk management information system (RMIS) , internal reporting and captive management. Starbucks has 22,519 stores in 66 countries, with a targeted growth rate of 1,650 net new stores during this fiscal year. Starbucks, the name inspired by Herman Melville’s novel Moby Dick, has one of the most recognized logos in the world. Its mission statement, developed by its founder Howard Schultz, is “to inspire and nurture the human spirit one person, one cup and one neighborhood at a time.”
Before joining Starbucks, Legg worked as an independent insurance broker, as well as in a claims capacity for Crawford & Co. Legg served on the board of the Washington state chapter of the Risk & Insurance Management Society (RIMS) for seven years, serving as president of the chapter during the 2005-2006 year. He has been an active participant within National RIMS and has served as a speaker to other insurance industry groups, such as the CPCU Society, the Professional Liability Underwriting Society (PLUS) and the Marine Insurance Association of Seattle. He has a degree in political economy of industrial societies from the University of California at Berkeley.
Legg grew up in Kirkland, WA, on the east side of Lake Washington. Nicknamed “the little city that could,” Kirkland is the former headquarters for the Seattle Seahawks and Costco. Kirkland Signature is still Costco’s store brand.
“I grew up interested in a lot of different things, but I wouldn’t say with any degree of certainty that I knew what I wanted to do for a living,” Legg said. “I was intrigued with going somewhere else to study, so I attended UC Berkeley. I was interested in crisis management, and I just happened to be at Cal when the 6.9 Loma Prieta earthquake  and devastating Oakland Hills firestorm  hit. From those experiences, I thought I might pursue law school.
“As things turned out, my first job was back in Washington state working as a claims adjuster for the branch manager of Crawford & Co., hired by our mutual friend and industry colleague Katrina Zitnik, who was later director of workers’ comp for Costco, 2001-2013. We handled the huge Boeing workers’ comp self-insured account. There were around 100 employees in that office alone. My specialty was working with chemical-related claims, which was really fascinating, before I moved over to liability claims. By my second year there, I started to really understand what risk management was all about.”
From that experience, Legg went on to achieve his ARM designation. “It may sound corny, but I didn’t like the way it looked on my business card as Legg-ARM, so I went on to pursue my CPCU,” Legg said.
“With that formal insurance education, I went to work for a regional insurance brokerage in Kirkland where I learned a lot about insurance and other facets of risk management.” Legg said: “I came to this realization that I didn’t want to handle claims or broker insurance. I wanted to be on the buyer’s side of all this – tending to insurance and a whole lot of other things.”
In 1997, Legg was hired by his predecessor at Starbucks, which had gone public in 1992. At the time he joined Starbucks, the company had about 1,000 stores in the U.S. and Canada and just a few new locations in Japan. Legg describes his experience at that time in risk management as more of a buyer of insurance, but his job responsibilities quickly deepened and expanded with the global spread of Starbucks. He assumed the director of risk management position in 2006 when his boss and mentor retired and became active in the management of Starbucks’ Vermont captive.
The evolving company
Legg explained that the organizational structure is set up based on three key global regions: (1) the Americas; (2) EMEA, which is Europe, Middle East and Africa; and (3) CAP, which is China, Asia Pacific. “Our biggest push is in the CAP region, especially China, which presents a lot of opportunity,” he said. Although that region has a tea-drinking tradition, Legg pointed out that Starbucks owns the tea company Tazo and more recently bought Teavana and its 300-plus stores, providing a high-end, specialty tea product that has become popular at Starbucks locations. He said Starbucks’ specialty coffee and expresso beverages have also become very popular in tea-drinking cultures.
Starbucks has also expanded its offerings in premium pastries (it bought La Boulange), food and merchandise offerings, and it recently began providing beer and wine in selected areas of the country. “Evenings at Starbucks had been under-utilized,” Legg said, “so with the rollout of beer and wine we’re able to serve additional patrons.”
How Starbucks manages risk
Serving 66 countries with various laws and customs, Starbucks has a global quality assurance organization work with business units that are immersed in foreign locations. “Risk management and legal principles are practiced with our people that understand and are sensitive to local government, culture, customs and laws,” Legg said. “Starbucks wants to provide appropriate food and beverages, and we have a global safety security organization, as well, that makes sure that we are tending to the different types of risks these different and diverse cultures hold. Safety and security are fundamental components in the initial and on-going training of our partners.”
When asked about the challenge of identifying, evaluating and treating risk in far-flung global operations, Legg noted that there is a common thread regardless of demographics that relates to keeping stores well-managed, clean, secure and hazard-free. He added that a global design team works with individual markets to address issues that mitigate any unusual risk factors, which could include something as simple as adjusting counter and stool height. Store components are designed to provide for each locale’s needs while Starbucks maintains the quality and consistency that its customers expect.
As for dealing with its insurance and reinsurance markets, Legg noted that Starbucks collects a significant amount of data on all of its locations to enable its internal team and underwriters to have the geographic information they need for modeling. North American operations are mostly self-insured via large retentions and deductibles; Legg points out that first-dollar and low-deductible insurance policies are far more common, accessible and prevalent in other parts of the world. Compulsory insurance requirements differ across jurisdictions — in many parts of the world, for instance, workers’ compensation as we know it is not available, and injuries or illnesses among employees (which Starbucks calls “partners”) are addressed in different ways.
“Regardless of the transfer or retention of risk, Starbucks feels that no one could ever care as much about our partners and our brand as we do,” Legg said. He added, “We inspire and nurture our partners and customers… through providing good products, friendly service and by contributing to our communities. It’s an important part of our culture and what makes this brand so strong.”
All eligible full- and part-time Starbucks employees receive comprehensive health coverage and equity in their company, referred to as “bean stock.” In turn, employees typically volunteer more than one million hours each year in helping their local communities. Starbucks has also set up agronomy offices in different countries around the world to help origin farmers to better manage their crops and businesses. “It’s really important all up and down the chain from the front-line stores to the source of the company’s most precious commodity to have a seamless connection,” Legg said.
I asked Legg what coaching suggestions he has for people entering the field of risk management.
He said, “I think to be successful in risk management that it helps to have a good understanding of a number of different disciplines like accounting, finance, law, etc. Most importantly, you need to have the ability to think critically through things to make good decisions and to then have the ability to communicate well and to influence others. Knowledge without good communication skills won’t equip you for this career.
“I find myself guiding and teaching other people in the organization every day, helping them develop their own risk assessment philosophy in what they do day in and day out. We in risk management can’t be there all the time, so our job is to train others throughout the organization to make good, sound risk management decisions.
“Be open-minded and flexible. Risk management staff needs to identify and admit their mistakes, correct things and be able to change course as needed.”
Legg added with a laugh, “You think you know in detail how things are, then you find out you really don’t know how things are.”
Nurse case management (NCM) has a powerful impact on workers’ compensation claim cost and outcome. Positive results of nurse involvement have long been anecdotally accepted, but widespread evidence of nurse impact has not emerged, and objective proof of value is still missing. Several factors account for this.
For one thing, NCMs are usually considered an adjunct to the claims process, called upon in sticky situations. Too often, referrals to nurses is a last resort rather than an integral and standardized part of claim management. When claims adjusters have the sole responsibility to refer to NCMs, it can be subjective, uneven and therefore unmeasurable.
Besides receiving referrals for sundry issues at different points in the course of the claim, nurses have not clearly articulated their case management interventions. Claims adjusters sometimes misunderstand the nurses’ approach. However, consistent referrals and standardized procedures can bring about major change.
Referrals to NCM should be made based on specific medical conditions in claims such as comorbidity like diabetes or problematic injuries like low back strains that tend to morph into complexity and high cost. Specific risky situations found in claims data should automatically trigger NCM notification.
A recent article published in Business Insurance, “Nurses a linchpin in reducing workers’ comp costs,” points out how Liberty Mutual has developed a tool that notifies claims adjusters of cases that would most benefit from a nurse’s involvement. Decision burdens for claims adjusters are eliminated. Referrals to NCM are automatic based on specific high-risk situations found in the claim. Inconsistency disappears, and several benefits evolve from this approach.
An operational process can be dissected and categorized, thereby gaining better understanding of its components and relative importance. Review the data to determine which medical conditions in claims result in longer disability, lower rates of return to work and, of course, higher costs. Select the conditions in claims that should activate an NCM referral.
An example is a mental health diagnosis appearing in the data well into the claim process. A mental health diagnosis appearing during the claim for a physical injury such as a low back strain is a strong indicator of trouble. The injured worker is not progressing toward recovery. However, the only way to know this diagnosis has occurred in a claim is to electronically monitor claims on a continuous basis.
To identify problematic medical situations in claims and intervene early enough to affect outcome, the data should be monitored continually. Clearly, this is an electronic, not a human function. When the data in a claim matches a select indicator, an automatic notice is sent to the appropriate person.
Catching high-risk conditions in claims is just the first step. NCM procedures must be established to guide responses to each situation triggered. Standardized procedures should describe what the NCM should evaluate and advise possible interventions. Such processes not only explain the NCM contribution, they assist in documentation and are the basis for defining value.
NCM has been under-appreciated in the industry because measuring apples-to-apples cost benefit has been impractical. When claims adjusters decide about referring to NCMs and individual nurses create their own methodology, variables are endless and little is measurable.
In contrast to the subjective approach, specific conditions in claims found through continuous data monitoring can automatically trigger a referral to the NCM. In response, the nurse is guided by the standard procedures of the organization. When referrals are based on specific conditions in claims and response procedures are delineated, outcomes can be analyzed and objectively scored.
In 1973, I began my insurance career as a claims’ adjuster. We handled some of the first claims in the new NFIP Flood Program. There was chaos.
A year later, I was hired by Cumis Insurance to staff a new sales office in Baton Rouge,LA. The market hardened dramatically, capacity was limited and our office closed before we sold a policy. I learned about market cycles.
My next job was as an insurance producer. My job and the agency business were good. We were paid 25% commission on homeowners policies, there was no transparency (comparative rating didn’t exist in our part of the world) and the most exciting change was when Safeco allowed field men (yes, they were all men) to wear blue or buff-colored shirts in lieu of the traditional white.
During my first week at work, a colleague dropped an article titled “Marketing Myopia” on my desk and said, “read it.” The author was Theodore Levitt. The piece was then and still is a classic — and framed my thinking about an issue that has only grown in importance and must become the future of insurance.
Levitt opened with an observation on the railroad industry, which declined because it defined itself incorrectly – “railroad-oriented instead of transportation oriented… product-oriented instead of customer-oriented.”
Levitt also mentioned a fundamental misunderstanding about the success of Henry Ford. “We habitually celebrate him for the wrong reasons: for his production genius. His real genius was marketing. We think he was able to cut his selling price and therefore sell millions of $500 cars because his invention of the assembly line had reduced the costs. Actually, he invented the assembly line because he had concluded that at $500 he could sell millions of cars. Mass production was the result, not the cause, of his low prices.”
From 1978 to 1981, I represented Fireman’s Fund/FAMEX in its GM dealers program. At that time, the No. 1 concern of General Motors and its dealers was that GM would gain 65% market share and that the government would then break GM into Cadillac, Buick, Oldsmobile, Pontiac, Chevrolet and GMC corporations. We all know how this played out.
In 1993, I opened my consulting practice focusing on CHANGE – its management and architecture. (“The best way to predict the future is to create it,” as Peter Drucker said.) I spoke to the leadership of a community bank and said that, although GM, IBM and Sears were the giants in their respective industries, “one of these three will ultimately go bankrupt.” The bankers rolled their eyes and laughed. We all know how this played out. (In my children’s lifetime, I may prove right on the other two.)
Later that same year, Drucker offered an op-ed in the Wall Street Journal, titled “The Five Deadly Business Sins.” It said, “The third deadly sin is cost-driven pricing. The only thing that works is price-driven costing. Most American and practically all European companies arrive at their prices by adding up costs and then putting a profit margin on top… their argument, ‘we have to recover our costs and make a profit.’
“This is true but irrelevant; customers do not see it as their job to ensure manufacturers profit. The only sound way to price is to start out with what the market is willing to pay.”
Levitt’s voice echoes his agreement from the “Marketing Myopia” article, when he says, “Our policy is to reduce the price, extend the operation and improve the article. You will notice the reduction of price comes first.” Drucker’s wisdom closed the circle that began with my reading of “Marketing Myopia.”
In 1994, I became the executive director of the Louisiana Managed Healthcare Association (LMHA) – the health maintenance organization (HMO) association. I quoted Drucker dozens of times as I attempted to explain the difference between the then-existing fee-for-service system and the new world of “capitation” and “managed care.” I was shouted down more than I was applauded.
That same year, a couple named Harry and Louise (in a TV ad campaign) defeated Bill and Hillary’s attempt to reform healthcare. Fast forward another 20 years and Obamacare is the law of the land. At its essence is managed care – a price-driven costing model. The market won’t go back to cost-driven pricing.
Two more observations from Drucker as your prepare for tomorrow — or choose to ignore it:
— “Because the purpose of business is to create a customer, the business enterprise has two and only two basic functions: marketing and innovation.”
Innovation is so necessary because customers are constantly changing. We must be defined and driven by clients.
–“There are now only three possible roads the financial services industry can take. The easiest, and usually most heavily traveled, is to keep doing what worked in the past. Going down this road means, however, steady decline….The second road – to be replaced, and probably fairly rapidly, by outside innovators – remains a possibility for today’s firms. But there is also a third and final road – to become innovators themselves and their own ‘creative destroyers.’”
Your future depends on more production but only at a price the market will pay. Your sustainability depends on innovating your processes to ensure profitable delivery whether your commission is hidden in the premium or disclosed or whether premiums are quoted net of commission.
Today, when I drive by a dealer, the genius of Drucker is reinforced. Look at a pickup truck on the lot. The window sticker shows the “cost-driven price.” The sign on the windshield celebrating a $12,000 discount is the price-driven cost.
If you want to sell a truck in today’s world, discounts are not optional!
Defying the conspicuously silent logic of the hoary adage that “what happens in Vegas, stays in Vegas,” disavowing any apostolic compulsion to confess, we herewith reveal the transparent composition of our recent presentation before the National Workers’ Compensation and Disability Conference and Expo, held in Las Vegas from Nov. 20, 2013, through Nov. 22, 2013, with apologies and atonements to David Letterman, he of the infamous Top Ten, as well as Alan Pierce, Esquire, our tactfully laconic moderator during our Vegas session on Nov. 22, allowing our panel, and our attentive audience, to review and identify the following potential causes as reasons injured workers seek attorney representation in workers’ compensation matters:
1. Claim Denial
This is the number one reason why injured workers hire attorneys;
Denials are often, but not always, triggered by claim investigation;
Multiple factors influence claim denials, including medical evaluations, work restrictions, availability of alternative-duty work, prior claim history, and employer input.
2. Injured Worker Represented In Prior Claim
The existence of a prior attorney-client relationship, obviously dependent upon prior claim outcome, will usually result in an injured worker retaining attorney for a new claim.
3. Confusing State Forms
Certain jurisdictions, Pennsylvania being one of them, employ compensation forms that even judges, experienced counsel, and the most highly sophisticated claims adjusters struggle to understand, in terms of their effect on compensability, disability, and related issues;
Receipt of a state form, accompanied by a form letter, can be confusing to an injured worker unskilled in compensationitis;
The same form can be the impetus for the Google keystroke, the counterpoint being to use simple, direct, and non-insulting directions for form execution and return.
4. Cessation/Termination of Claim Benefits
Stopping benefits, absent agreement to the stoppage, generally results in attorney retainage;
Employer-filed WC litigation seeking to cease/terminate claim benefits drives injured workers to attorneys.
5. Process Overwhelms and Confuses
Although not rocket science, it is a not uncomplicated process to secure or retain workers’ compensation benefits, particularly when potentially related to other alphabet soup statutes, such as FMLA, ADA, and Unemployment Compensation, as well as private disability coverage.
6. Dissatisfaction with Medical Care
Cannot get medical treatment authorized;
Does not like employer-designated health-care practitioner;
Disagrees with, or will not follow through with, treatment recommendation;
Cannot get the claims adjuster to answer questions regarding medical compensation benefits.
7. Third-Party Liability
The existence of third-party liability typically results in the involvement of personal injury attorneys, with referral to workers’ compensation claimant attorneys;
Potential third-party liability triggers potential subrogation lien interests of the employer/insured.
8. Google It
In general, the ability to find and retain skilled legal representation, in any kind of practice area, is only a computer keystroke away;
It is also there on the radio, on the drive to the doctor’s office;
It is ubiquitous;
It is splattered all over public transportation;
It is emboldened by numerous publications and periodicals.
9. Unpaid Medical Bills
Collection notices for unpaid medical bills drive injured workers crazy, resulting in attorney involvement.
10. I Hate My Job Almost as Much as I Hate My Boss
This evidences a lack of trust, not to be confused with pure retaliation;
It is the perception that has festered, infecting claim dispositions.
11. Referrals by Medical Care
Particularly true with chiropractors, as well as physical therapists, as they tend to be quicker referral sources than other practitioners;
It is a symbiotic medico-legal universe.
12. Fear of Being Fired
Are we surprised?
The fear of being fired, besides producing cold sweats and trepidation, produces psychological crisis, resulting in confrontation.
13. Family Prodding
It is the nudge while watching TV;
It is the frustrated “when are you going to do something about this?”;
It is the stuck at home, no paycheck, no ride to the doctor, no work, and no taking out the trash, no doing house chores, building a base of friction and frustration.
Is there a moral to our story?
Anyone attending the National Workers’ Compensation Disability Conference and Expo heard numerous presenters characterize workers’ compensation systems and procedures as having, at their core, the function of restoring injured workers’ physical and psychological capabilities to return to work to achieve pre-injury status. Several NWCDC panelists underscored the humanitarian policies upon which workers’ compensation statutes and systems are structured, placing great emphasis on the moral obligation of all workers’ compensation stakeholders to employ fairness in the administration of claims. The following tips are suggested for all, in the course of dealing with injured workers:
Avoid making assumptions about claim facts and claim personas;
In short, even in disputed claims, it is critically important to treat others, including the claimant, claimant’s counsel, the employer, any third parties involved in the claims administration process, defense counsel, and the administrative fact finder, as you would want others to treat you.