Tag Archives: david depaolo

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 4)

I’m aware of no logic, facts or data to support the assertion that options increase workers’ compensation premiums. The exact opposite can be easily demonstrated.

Ask yourself, are prices higher or lower when employers have only one product to choose from vs. when they are able to choose among competing products? Texas went from the 10th most expensive workers’ compensation system in the U.S. in 2003 to the 38th most expensive state in 2013 through a combination of workers’ compensation system reforms and competitive pressures from employers electing the Texas “nonsubscriber” option – choosing not to be part of the state’s workers’ compensation system. One-third of all Texas employers have elected the option. Employers representing hundreds of thousands of Texas workers evaluated the impact each system would have on their claim costs, compared insurance premiums and exited the state system between 2003 and 2013.

Likewise, Oklahoma simultaneously enacted workers’ compensation reform and option legislation in 2013. Workers’ compensation premiums have since dropped more than 20%, and Oklahoma option programs are saving even more.

Further debunking the myth option program raise workers’ compensation costs, a 2015 report from the Workers’ Compensation Research Institute studied workers’ compensation claims in 17 states and found that the total average cost per claim for injured workers in Texas was among the lowest. Costs per claim grew in Texas only 2.5% per year from 2008 to 2013, as measured in 2014. In contrast, for National Council on Compliance Insurance (NCCI) states, the average indemnity cost per lost-time claim increased by 4% in 2014, and the average medical cost per lost-time claim increased by 4% in 2014.

Texas workers’ compensation is outperforming national averages because Texas employers have a choice. The option creates a greater sense of urgency among regulators and workers’ compensation insurance carriers to manage claims better so they can reduce premium rates and compete with the alternative system. The option also makes implementation of workers’ compensation reforms more manageable, because they happen across a smaller base of claims.

Further, consider that most employers that implement option programs have some frequency of injury claims. Very few employers with no injury claims are willing to go to the time, effort and expense of adopting and communicating a special injury benefit plan, buying special insurance coverage, contracting a claims handling specialist and satisfying newly applicable state and federal compliance requirements (which may include a state qualification process and filing fee). Because options take many companies that have injury claim losses out of the workers’ compensation system, workers’ compensation insurance carriers suffer fewer losses and can reduce workers’ compensation premiums. The carriers must compete harder for business, and they have no justification for charging higher premiums when their total loss experience improves.

Associations that represent workers’ compensation insurance companies have labeled options an “external threat” to the industry at a time when premium volume and carrier profits are up and losses are at a 17-year low.  Calendar-year 2014 underwriting results, combined with investment gains on insurance transactions, produced a workers’ compensation pretax operating gain of 14%. These insurance companies urge state legislators to protect their monopolistic, one-size-fits-all product and its profits. They also fight to maintain an anti-competitive web of price-setting collaborations that would violate antitrust laws in other industries.

As David DePaolo recently noted on WorkCompCentral, in “the business of workers’ compensation insurance… investors (the business side) want to know whether they are going to make money, and how much, by financing the system; not whether the system is working ‘correctly’ or not.” This is an important insight in the context of workers’ compensation insurance lobbyist objections to an option. The lobbyists promote the idea that workers’ compensation systems are superior and working fine, but that is not their primary motivation in trying to shut down competitive alternatives.

Some insurance association members have defected and embrace free-market competition. More than $150 million in the Texas nonsubscriber option insurance premium was written last year alone. The Oklahoma option insurance market is just starting up. Many “A-rated” insurance companies now oversee the successful resolution of approximately 50,000 injury claims per year under option programs.

An option can be authorized by a state legislature before, after or at the same time as workers’ compensation reforms are adopted. Legislators suffering from “workers’ comp fatigue” find option legislation to be dramatically less voluminous, time-consuming, confusing and contentious than major workers’ compensation reform.  And, as proven in Texas and Oklahoma, the option can slash employer claims costs by 40% or more. A single state (like Tennessee or South Carolina) can see lower government regulatory expense and more than $100 million in annual public and private employer savings. That impact grows exponentially through economic development multipliers. Those are dollars that can be used to create private-sector jobs and invest in education, safety, transportation and other legislative priorities.

In contrast, when standing alone, workers’ compensation system reforms are typically returning single-digit premium rate reductions that do not move the needle on injured employee medical outcomes or economic development. Even the widely referenced Oregon premium ranking study (like many others) questions the ability of traditional workers’ comp reforms to create significant movement in employer costs or employee satisfaction.

Options to workers’ compensation have particularly worked to the advantage of small employers, which pay most of the workers’ compensation industry premiums. Small companies that experience few, if any, on-the-job injuries typically purchase workers’ compensation insurance coverage on a guaranteed-cost (zero-deductible) basis. They get competitive quotes on both workers’ compensation and option insurance products, then typically choose to write the workers’ compensation premium check and be done. However, both big and small businesses can benefit from option programs. There are several Texas nonsubscriber insurance carriers that write policies for hundreds, even thousands, of small employers. In fact, the vast majority of Texas and Oklahoma employers that have elected the option are small, local businesses.

Many reputable insurance providers sell “bundled” programs for small business that supply all option program components, including the insurance policy, injury benefit plan, employee communications, claims administration and legal compliance. It is a simple, turnkey service for insurance agents and employers, delivering better medical outcomes and higher employee satisfaction when the rare injury occurs.

If an employer that has elected the option does not like it (for whatever reason), it can go back into the workers’ compensation system at any time. These facts are all reflected in the migration of small employers back and forth between workers’ compensation and option programs in Texas, choosing the best route for their companies and employees as workers’ compensation premium rates have moved up and down over the past quarter century.

Even if (as seen in Texas) a significant percentage of a state’s employers elect an option, the “pool” of workers’ compensation premiums can still be hundreds of millions of dollars, a figure large enough to spread the risk and absorb catastrophic claims.

Those who say that workers’ compensation premium rates will go up when a state legislature authorizes an option need to back up their fear mongering with similar logic, facts and data or admit their true, anti-competitive motivations.

How to Manage MPNs in Workers’ Comp

A recent study of the use of medical provider networks ( MPNs) in California by the California Workers’ Compensation Institute (CWCI) found that, “While the use of the networks to medically manage treatment of work-related injuries has fulfilled the legislative intent to encourage network use, over time the MPNs have not lowered the cost of medical care.”

David DePaolo, CEO of WorkCompCentral, says medical cost savings is only part of the picture. MPNs need to be managed because the medical impact on other aspects of claims such as disability, indemnity, return to work and other factors is significant.

So how should networks be managed?

Networks can be managed only by evaluating and monitoring individual performance.

A network is the sum of its parts, the parts being the physicians and other medical providers. A network cannot be managed as a whole. Each individual medical provider acts independently and with differing results. Moreover, each provider, even within groups or facilities, acts independently. Consequently, each must be evaluated and managed individually.

Since networks began in workers’ comp back in the 1980s, their rationale has been that they offer discounts off stated rates for services, which they portray to payers as savings. The assumption is that all medical providers are equal. But no one checked.

No one checked because it was easier to claim savings through discounts than to evaluate the performance of individual medical providers in the network. Evaluating medical performance is especially tricky in workers’ compensation because, in addition to cost and medical treatment factors, there are elements unique to the industry that must be considered. Indicators of quality performance are many and varied.

But indicators can be found in the data. They include medical treatment indicators such as direct medical costs, prescriptions, surgery, hospitalization and medical procedures analyzed by injury type. Non-medical performance indicators that are influenced by medical providers include return to work, indemnity costs and legal involvement, along with ultimate outcome indicators such as claim closure and disability ratings at the close of the claim.

The way to manage networks is to use the data to identify the best providers and monitor their performance.

The data necessary to evaluate medical provider performance, particularly physician performance, can be found in bill review data, claims system data, pharmacy data and the utilization review system. Unfortunately, the data resides in different silos, but, by combining the data from these sources at the claim level, individual provider performance can be measured.

Because the data reflects actual treatment and events, it is objective and quantifiable. Select quality indicators in the data, adjust for case mix and keep them constant over time.

Medical costs have increased to 60% of claim costs, calling into question the benefit of network discounts. The truth is that medical providers long ago learned how to overcome the cost of discounts by increasing treatment frequency and claim duration, as well as prescribing expensive procedures, among other tactics.

Going forward, the major hurdle in managing networks effectively is to de-emphasize discounts, while underscoring and rewarding quality performance. To make that financially feasible for the networks, a different approach to discounting should be entertained. For instance, those providers who rate highest in quality performance would be excused from discounts. Likewise, those performing the worst would be discounted the most.

To manage a network, the performance of individuals within it must be evaluated and monitored continually. No longer does it suffice to sign up providers for the network and walk away. When individual provider ratings slip, action should be taken.

Let providers know they are being monitored. It has been proven that observed performance leads to behavior change.

Don’t Drink the Kool-Aid on Opt-Out

Former President George W. Bush infamously said in 2005, “See, in my line of work you got to keep repeating things over and over and over again for the truth to sink in, to kind of catapult the propaganda.”

Opt-out supporters and proponents repeat over and over again that opt-out is better for employees.

They forgot to tell that to Rachel Jenkins.

Jenkins, a 32-year-old single mother of four, was injured while working a double shift at a disabled care center in northwest Oklahoma City owned by ResCare, the nation’s largest privately owned home healthcare agency. Jenkins was injured on March 31 attempting to break up an assault of her disabled client by another patient. The incident was witnessed by Jenkins’ supervisor.

After her shift, Jenkins went to the emergency room, where she was administered medication and sent home to rest. Her employer sent her to a company doctor the next day. He provided medication and ordered physical therapy.

But ResCare’s opt-out contract with its employees requires claimants to call a designated toll free number to report accidents within 24 hours, and Jenkins did not call until the 27th hour. Her claim was denied.

Three hours late on a phone call, and Jenkins is on her own.

Bob Burke, her attorney, just filed a case in the District Court of Southern Oklahoma seeking declaratory judgment, saying the state insurance commissioner has obviated his responsibilities by approving ResCare’s opt-out plan and others that don’t give workers at least a one-year statute of limitations to report their injury, as required by Oklahoma law.

“Every opt-out plan I have seen so far has a 24-hour requirement that bars benefits if notice is not given,” Burke wrote in an op-ed published Monday in the Journal-Record newspaper. “Even though state law requires opt-out plans to have the same one-year statute of limitations as regular workers’ comp, the insurance commissioner continues to approve the plans, and the legislature, in House Bill 2205, is trying to remove the plans from public inspection under the Open Records Act.”

This case demonstrates the true intent of at least THIS opt-out participant: to stick it to the worker.

The employer cannot claim lack of notice – the injury was witnessed by her supervisor, and Jenkins was sent by the company to its doctor!

Burke says the insurance commissioner approves the 24-hour limitation because it is a notice requirement only. Apparently that translation got lost in practice, because ResCare and its administrators clearly are using the provision as a statute of limitations.

I’m sure there’s another side to the story. Opt-out proponents will have to spin that other side to preserve credibility. In the meantime, the wheel in the opt-out PR repetition machine has a broken cog.

Opt-out had me semi-convinced that it was a valid alternative to traditional workers’ compensation with its promises of less bureaucracy, better injured worker care, greater efficiency, competition and improved outcomes.

Proponents kept repeating the benefits over and over and over again…

The propaganda almost got catapulted, and I nearly drank the Kool-Aid.

Not now. It smells poisoned.

Workers’ Comp Is Under Attack

This is the Year of Awareness — awareness by the general public about workers’ compensation issues.

There is the series by ProPublica, with three installments so far and more to come. You might not like it, but Michael Grabell and his team are accurately portraying pain points in workers’ compensation.

The Federal Occupation Safety and Health Administration’s review of the literature over the past couple of decades also fuels the fire about the inadequacy of workers’ compensation, and the spill of employer obligations onto the general taxpaying population.

Last year, the Texas Tribune ran a series, “Hurting for Work,” that criticized that state’s work injury protection system (or lack of it).

And a Florida trial judge has taken the position that workers’ comp is no longer of constitutional grade.

Now, Mother Jones has published an article it says exposes the true intent of the opt-out movement: to diminish benefits across the nation. Opt-out supporters contest that conclusion and say they only want employers (in this case, only big business can afford the resources to opt out) to be able to provide better benefits in a more consolidated manner to their workers. Proponents are not, however, shy about confirming that their intent is to take opt-out nationwide, to all states.

The latest test case is Tennessee, where Sen. Mark Green’s SB 721 has gone through several amendments in an attempt to address critics — albeit, in my opinion, these amendments fall far short.

There are two major problems with opt-out, and in particular with SB 721 if it is to be used as a model: 1) the cap on lifetime medical benefits; and 2) the lack of accountability to public regulators.

Most state workers’ compensation systems have a limitation on both temporary disability indemnity and permanent disability indemnity. There has been for a long time a debate as to the adequacy of indemnity benefits to keep the paycheck-to-paycheck worker sustained during recovery, and those benefits differ greatly from state to state. This debate is sure to continue regardless of what “reform” ever gets passed.

This debate also applies to the adequacy of permanent disability indemnity– whether it adequately compensates for the loss of an eye, etc. Again, where one gets hurt makes a huge difference in how much money a disability is “worth,” and the debate about this will never settle.

The provision of medical benefits for the lifetime of an injured worker, however, has never been on the table — that is a topic that is simply sacrosanct, for the very simple reason that it was part of the original grand bargain.

State reforms have, however, over the past two decades done as much as possible to eviscerate lifetime medical by requiring adherence to guidelines, by scaling based on co-morbidities, by forcing third-party reviews and by trimming reimbursement or rebalancing fee schedules, among other tactics.

These efforts have been in reaction to perceptions that employers are unfairly paying for someone else’s problem, or to abuses by unscrupulous providers. Broad-brush attempts to correct these problems reel in unsuspecting victims, just as tuna nets capture innocent dolphins.

The Mother Jones article is critical of the lobbying efforts of the Association for Responsible Alternatives to Workers’ Compensation, implying that its big-company sponsorships and spending is sinful.

It’s not — it’s just political reality. Just because a bunch of people with resources get together on a specific mission is not a reason to castigate either the people or the mission. It’s done on both sides of nearly any debate. That’s how we do things in America.

Painful as it is for this industry, though, the fact is that workers’ compensation is under attack — from all sides.

Employers are sick and tired of the cost of the system and how little control they have over it. They’re paying for it and don’t see much if any value or return on investment.

And guess what? Workers who go through workers’ compensation are likewise sick and tired over the cost of the system and how little control they have over it.

Is this the fault of us, the professionals who have the task of administering benefits?

In part, yes.

But the larger issue is what society wants, and what all this attention lately is telling me is that society wants a way to provide security to both business and workers — in a manner that is better than what workers’ compensation has devolved into.

I don’t view opt-out as evil. I do view it as a necessary element in the debate about the adequacy of workers’ compensation to deliver on its original promise: protect employers from economic ruin when someone gets hurt, and protect the worker who got hurt.

If you take ARAWC’s mission at face value, what the group wants to do is laudable. It is saying that state workers’ comp systems no longer are a viable piece of the social contract, that private industry can do it better.

Maybe it can, if there are reasonable protections that meet the essential elements of work injury protection — and that means taking care of an injury for life and not stacking dispute resolution in favor of one party or the other.

But this column isn’t about ARAWC, or opt-out; it’s about an awareness that is developing.

Workers’ compensation used to hide in the shadows of healthcare and disability. Ask anyone just a few years ago about work injuries and you’d get an earful about “workman’s compensation” and how a neighbor is cheating the system.

Now the public is beginning to ask: What are all these businesses doing for their pay when there’s all these people who are being thrown to the curb for trash pick-up day? Why are businesses paying for services that don’t seem to be delivered on time or in enough quantity? How is it that an insurance company that agreed to take care of an injured person for life can delegate that obligation to public welfare?

As I see it, the public assault on workers’ compensation, the trend that is developing toward opt-out systems and the overall malaise that seems to have settled over work comp portends a much-needed, long-deserved debate.

The public is asking questions. Hard questions. Because the public isn’t seeing the value in work comp that had been promised (and delivered) for so long.

We’re entering into a whole new era of business vs. labor dispute. The haves and the have-nots are drawing lines in the sand.

The last time this happened, the federal government threatened imposition. It could happen again.

What we rely on for work injury protection systems will be vastly different in 10 years than what exists now. It’s clear to me this is what’s happening.

Less clear is what will actually exist in 10 years.

This article first appeared at WorkCompCentral.