Tag Archives: cost shifting

Top 5 Things PCI Got Wrong on Work Comp

In June, the Property Casualty Insurers Association of America (PCI) published a report titled “Cost Shifting from Workers’ Comp Opt-Out Systems: Lessons from Texas and Oklahoma.” It claims to show how employers in those states are avoiding costs that should be covered by workers’ comp and that are instead paid by workers, their families, private payers and taxpayers. The report is part of a year-long, anti-competitive campaign that has been orchestrated with claimant attorneys who profit under workers’ comp and resist any move away from the traditional approach. The report shows little regard for the facts, applicable law or actual data on performance of alternatives to traditional workers’ compensation.

Here are five of the most significant bits of misinformation and misrepresentation:

1. No relevant data. The PCI cost shifting report boasts of using “verifiable and relevant data” and speaks to “the behavior of opt-out employers.” But the report fails to actually include any Texas or Oklahoma Option claims data, and the truth is that there is no evidence that PCI has even attempted to obtain such claims data.

2. No apples-to-apples comparison. PCI fails to consider the benefit plan payments, supplemental plan payments and negligence liability settlements and awards under Texas Option programs that are not available under workers’ compensation.

See also: 2016 Outlook for Property-Casualty

3. No mention that the majority of Texas workers are covered. PCI fails to acknowledge that the Texas Department of Insurance has determined that more than 95% of Texas’ workers are covered by either workers’ compensation or an injury benefit plan.

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Instead of criticizing responsible Texas and Oklahoma employers who provide injury benefit coverage for their workers, PCI should instead focus on the approximately 14 million — and growing — American workers across all states who have no work injury protection whatsoever.

4. No mention that proposed programs in other states have mandated benefits. PCI extrapolates from Texas to posit a false model for Tennessee and South Carolina. Option programs proposed in those states — unlike Texas — have mandated benefits. No bill has been introduced in either of those states to allow employers to “go bare.”

5. No acknowledgement of option program compliance with Medicare reporting and MSA requirements. Option programs normally pay full benefits before Medicare pays anything. The programs comply with Medicare quarterly, electronic reporting rules on open medical claims and liability settlements. The programs protect Medicare’s primary interest before settling claims with Medicare beneficiaries by setting aside a portion of the settlement funds to pay for future treatment.

Instead of using option programs as a scapegoat and pursuing the fatalistic view that savings by employers equate to cost shifting, perhaps the PCI should expend more energy on how to achieve better medical outcomes for injured workers through communication, employee advocacy, accountability and competition.

Option Program Success in Delivering Better Outcomes Is the Real Story

We will continue to advocate for a more positive discussion on how to achieve better medical outcomes. That should include a sincere discussion of the PCI board’s criteria for an acceptable alternative to workers’ compensation, which was approved in July 2015 and publicly introduced eight months later at the 2016 annual conference of the Workers’ Compensation Research Institute.

See also: Healthcare Reform’s Effects on Workers’ Compensation  

Workers’ comp options in Texas and Oklahoma have disrupted the industry with much-needed innovation and positive change. This has understandably created some dissonance and has rightly generated calls for proof. We welcome a review of real option program data, which amply demonstrates how highly respected industry players and employers are improving the lives of injured workers and reducing costs.

Who could be against that?

The REAL Objection to Opt Out

I have never really understood why the Property Casualty Insurers Association of America has been so vehemently against opt out.

While it seems that opt out returned to the back burner for this year with constitutional defeats in Oklahoma and political stalemate in other states, PCI has reignited the debate with an inflammatory paper.

The basic arguments, which PCI supports with some data, is that opt out results in costs shifting to other systems and that a lack of standards and transparency is detrimental to consumers (i.e. injured workers).

PCI also argues that opt out is all about saving employers money to the detriment of consumers by denying more claims earlier and paying less with capitations and restrictions not found in traditional comp.

I get that alternative work injury systems must meet certain standards and need to be more transparent to consumers — to me, that’s a no-brainer.

But the objections that PCI raises are exactly the same complaints made against traditional workers’ comp: inadequate benefits, unnecessary delays, cost shifting, etc.

See also: Debunking ‘Opt-Out’ Myths (Part 6)  

Each statistic cited by PCI against opt out can be asserted against traditional workers’ comp — just use another study or data source.

For instance, just a couple of years ago, Paul Leigh of University of California at Davis and lead author of the study, Workers’ Compensation Benefits and Shifting Costs for Occupational Injury and Illness, told WorkCompCentral, “We’re all paying higher Medicare and income taxes to help cover [the costs not paid by workers’ compensation].”

That study, published in the April 2012 edition of the Journal of Occupational and Environmental Medicine, found that almost 80% of workers’ compensation costs are being covered outside of workers’ compensation claims systems. That amounts to roughly $198 billion of the estimated $250 billion in annual costs for work-related injuries and illnesses in 2007. Just $51.7 billion, or 21%, of those costs were covered by workers’ compensation, the study said.

Of the $250 billion price tag for work-related injury costs, the Leigh study found $67.09 billion of that came from medical care costs, while $182.54 billion was related to lost productivity.

In terms of the medical costs, $29.86 billion was paid by workers’ compensation, $14.22 billion was picked up by other health insurance, $10.38 billion was covered by the injured workers and their families, $7.16 billion was picked up by Medicare and $5.47 billion was covered by Medicaid.

The study drew criticism from the workers’ comp crowd, which defended its practices, challenged the data and anecdotally attempted to counter argue, with limited success.

If one digs deep enough in the PCI study, I’m sure one could likewise find fault with the data and the reporting on cost shifting — because the truth is that absolutely no one has a fix on that topic.

My good friend Trey Gillespie, PCI assistant vice president of workers’ compensation, told WorkCompCentral that “the fundamental tenets of workers’ compensation [are] protecting injured workers and their families and protecting taxpayers. The general consensus is that the way programs should work is to protect injured workers and taxpayers and avoid cost-shifting.”

Of course! All work injury protection systems should do that.

But they don’t.

See also: What Schrodinger Says on Opt-Out

That’s what the ProPublica and Reveal series of critical articles about workers’ compensation programs across the country tell us, both anecdotally and statistically: Injured workers aren’t protected, costs are shifted onto other programs, and taxpayers are paying an unfair portion of what workers’ comp should be paying.

Indeed, in October, 10 federal lawmakers asked the U.S. Department of Labor for greater oversight of the state-run workers’ compensation system, to counteract “a pattern of detrimental changes to state workers’ compensation laws and the resulting cost shift to public programs.”

I started thinking about the one truism that governs human behavior nearly universally: Every person protects their own interests first. And I thought of PCI’s name: Property and Casualty Insurers Association of America. “Property and casualty.” Ay, there’s the rub!

There’s no room for P&C in opt out! ERISA-based opt out uses only health insurance and disability insurance.

Workers’ comp is the mainstay of the P&C industry, the single biggest commercial line and the gateway to a whole host of much more profitable lines.

If opt out spreads beyond Texas, it is hugely threatening to the interests of the PCI members because they stand to lose considerable business, particularly if opt out migrates to the bigger P&C states.

PCI is protecting its own interests (or those of its members) by objecting to opt out.

And I don’t blame them. Their impression of this threat is real.

Michael Duff, a professor of workers’ compensation law at the University of Wyoming, told WorkCompCentral, “These are interested observers. They’re going to have an agenda. They represent insurers who are in the workers’ comp business.”

Bingo.

“Every commercial actor that participates in traditional workers’ compensation has an interest in seeing traditional workers’ compensation continue,” Duff went on. “But that traditional workers’ compensation imposes costs on employers. There is now a group of employers who would like to pay less, and Bill Minick has developed a commercial product that is in competition with this other conceptual approach to handling things.”

Here’s THE fact: Traditional workers’ compensation and ANY alternative work injury protection plan require vendors pitching wares and services to make the systems work.

Insurance companies are as much a vendor in either scenario as physicians, bill review companies, utilization review companies, attorneys, vocational counselors, etc.

Each and every single one makes a buck off workers’ comp, and each and every one has an interest in maintaining the status quo.

See also: States of Confusion: Workers Comp Extraterritorial Issues

Arguing that one system is better than the other without admitting one’s own special interest is simply hypocrisy.

Workers’ compensation is going through some soul searching right now. Employers leading the debate are asking, “Why stay in a system that facilitates vendors’ interests ahead of employers or workers?”

THAT’s the question that BOTH the P&C industry and the opt out movement need to answer. Further debate about the merits of one over the other is simply sophistry.

This article first appeared at WorkCompCentral.

Debunking ‘Opt-Out’ Myths (Part 1)

Those who believe in the current workers’ compensation system share objectives with those who believe that companies should have the ability to “opt out.” We all want quality care for injured workers, better medical outcomes, fewer disputes, a fair profit for insurance companies and the lowest possible costs to employers. However, supporters of “options” to workers’ compensation object to a one-size-fits-all approach to achieving these objectives. They want to be able to either subscribe to the current workers’ comp system or provide coverage to workers through other means.

The Texas nonsubscriber option has proven beneficial for injured workers, employers and insurance carriers for more than 20 years. The Oklahoma Option has been in effect for one year and is delivering promised results for injured workers and employers, including lower workers’ compensation costs. Legislation to provide for options in Tennessee and South Carolina was introduced earlier this year.

New laws need to be studied carefully. They take time to develop, understand and implement. Injury claims also take time to properly process and evaluate. That is part of the challenge. It takes time to develop the facts of every claim and to hear everyone’s story. The true test of whether a law or new system works is the outcomes it produces over time. Option opponents should take some time to review the results being achieved now in Texas and Oklahoma, and the fact that the Tennessee and South Carolina options are built upon the exact same principles that have led to happier employees and substantial economic development.

To cover the issues related to workers’ comp options, I am writing an eight-part, weekly series. This overview is Part 1. The remaining seven will be:

Part 2: Low-Hanging Fruit – Dispelling some of the most common myths about workers’ comp options

Sometimes, these myths are simply because of misunderstandings. Sometimes, they are outright lies in a desperate attempt to maintain the status quo for workers’ compensation programs that are championed only by a subset of interested insurance carriers, regulators and trial lawyers.

Part 3:  Homework and Uninformed Hostility

Everyone complains about the inefficiencies, poor medical outcomes, cost shifting and expense of workers’ compensation systems until a viable, proven solution is presented. Then, suddenly, everyone loves workers’ comp? It’s time to take a breath and look at some homework.

Part 4: Option Impact on Workers’ Compensation Systems and Small Business

Does an option force employers to do anything? Does an option force changes to the workers’ compensation system? Are all workers’ compensation carriers opposed to options? Should past workers’ compensation reforms just be given more time to take hold? Do options hurt the state system by depopulating it of good risks? Do options increase workers’ comp premiums for small business? Is the option just for big companies, and they all elect it?

Part 5: Litigation Uncertainties

Are Texas negligence liability claims out of control?  Should Oklahoma Option litigation delay other state legislatures? Should Oklahoma Option litigation further delay employers from electing the option? Does an option create animosity between business and labor?

Part 6: Option Program Transparency and Other “Checks and Balances”

Are immediate injury reporting requirements unfair? Are option benefits simply paid at the discretion of the employer? Are option programs “secretive” and provide no “transparency?” Are there other “checks and balances?”

Part 7: Option Program Benefit Levels and Liability Exposures

Are option benefits less than workers’ compensation benefits? Are option benefits less than workers’ compensation because of taxes?  Where do the savings come from?

Part 8: Impact on State and Federal Governments

Do option programs shift more cost to state and federal governments? Do option programs increase state and federal regulatory costs? Do option programs give up state sovereignty over workers’ compensation?

Healthcare Reform’s Effects on Workers’ Compensation

Since its passage in 2010, the Affordable Care Act (ACA) — commonly referred to as healthcare reform — has been the subject of intense political debate and a source of anxiety for many employers. Although most employers have focused on the law’s health benefit requirements, the ACA is also expected to affect how they manage their workers’ compensation costs. Employers should understand how reform will affect the quality of care available to their employees, the calculation of workers’ compensation premiums and claims filings — and what employers can do to manage those effects.

Workers’ Health Proponents of the ACA say it will lead to a healthier society. Because more people will have access to healthcare, advocates say, there will be a reduction in comorbidities — additional diseases or disorders that individual patients often have along with a primary disease or conditions. For example, diabetes and hypertension are typical comorbid conditions of obesity. These comorbidities can frequently complicate workers’ compensation claims. Consider that a California Workers’ Compensation Institute analysis of claims from 2005 to 2010 found that average benefit payments on claims for employees with obesity as a comorbidity were 81% higher than those without. There is, however, no significant evidence to support the contention that an employee is less likely to file a workers’ compensation claim simply because the employee is insured. For example:

  • A recent Assured Research study examining health insurance penetration rates and workers’ compensation loss ratios in individual states from 1999 to 2011 showed little correlation between the two measures.
  • Data from the Centers for Disease Control and Prevention indicate that heart disease remains the leading cause of death in the U.S. and that the percentage of Americans with a high body mass index has steadily climbed over the last 50 years — two trends that are not confined to the uninsured population.

Cost Shifting Employers have long been concerned that injuries from non-work-related causes will be shifted to workers’ compensation. Doing so is tempting because of workers’ compensation’s combination of higher reimbursement rates for medical providers and lack of deductibles and copayments for employees. There is significant evidence to show that treatment for the same diagnosis costs more under workers’ compensation than under group health insurance because of higher reimbursement rates and greater utilization of services. A recent Workers’ Compensation Research Institute study of 16 large states, for example, showed that workers’ compensation payments for shoulder surgeries were often significantly higher than group health medical payments for the same procedure. Some have speculated that the greater access to health insurance promised by the ACA will reduce this shift to workers’ compensation. However, it has become clear that the law will not result in all Americans having health insurance coverage. With the ACA requiring that employers offer coverage to all employees working 30 or more hours per week starting in 2015, one in 10 large companies are planning to cut back on hours for at least a portion of their workforce, according to Mercer’s National Survey of Employer-Sponsored Health Plans 2013. Other employers are using higher copayments and deductibles to help offset cost increases. It appears, therefore, that the financial incentive for employees to shift treatment toward workers’ compensation will continue under the ACA.

Access to Care Probably the most predictable outcome of the ACA is that it will increase the number of individuals in the U.S. with health insurance coverage. Despite the potential benefits, this could put additional stress on a health are system that is already short on doctors. Among the 34 member nations of the Organisation for Economic Co-Operation and Development, the U.S. ranks 27th in physicians per capita (see Figure 1). And this problem does not appear to be going away: The Association of American Medical Colleges forecasts that physician demand will dramatically outpace supply over the next decade, leading to a shortage of more than 90,000 physicians in the U.S. in 2020. This is particularly troubling as it relates to specialists — for example, orthopedic surgeons — and the potential for delays in obtaining diagnostic tests and scheduling elective surgeries and other procedures. Longer periods of disability and complications as a result of such delays would ultimately drive workers’ compensation costs up. With this added pressure on a limited number of medical providers, it becomes more important than ever for employers to develop medical networks that focus on quality of care and outcomes — even if it means paying more on a fee-for-service basis. Employers that pay their medical providers fairly and quickly will have more timely access for their injured workers and should ultimately have lower workers’ compensation costs.

Standards of Care Traditionally, the healthcare industry’s focus has been on volume; more patient admissions, tests and procedures translated to higher revenues. Post-reform, however, the industry has shifted its focus to improving standards of care and achieving better patient outcomes. If this transition results in less emphasis on costly procedures, which often produce questionable results, workers’ compensation costs could be reduced. Although it remains to be seen whether the standards of care developed under the ACA for group healthcare would be enforced under workers’ compensation, this is a promising development for employers.

Premium Refunds The ACA provides for insurers to rebate premiums to employers that have better than expected performance with their healthcare programs. Employers can either refund such premiums back to their workers or use them to offset future premiums. The National Council on Compensation Insurance (NCCI) has indicated that if premium refunds are given to employees, this would be considered payroll under workers’ compensation premium calculations. In other words, having a good performance on its group health program could increase an employer’s workers’ compensation program costs because premium calculations are tied to payroll. Employers should keep this in mind when deciding what to do with healthcare premium rebates that may be received.

Managing the Effects of Healthcare Reform There is little doubt that healthcare reform will have an impact on workers’ compensation costs and claim trends. And while the extent will not be known until the ACA has been fully implemented, employers can take steps now to lessen any potential negative impacts, and increase the value of the positives. For example, employers should:

  • Increase efforts to identify medical providers that can provide the best quality care for injured workers and take the necessary steps to ensure the workforce has access to these providers.
  • Carefully manage the approach to healthcare premium rebates, which could affect how payroll is calculated under workers’ compensation.
  • Closely monitor any shifts in injury claims to workers’ compensation. Despite the ACA’s promise of greater access to health insurance coverage, there remains a financial incentive for employees to seek treatment under workers’ compensation rather than group health.
  • Remain committed to loss-control efforts. Don’t let concerns over the ACA cause a loss of focus on this key area.