Tag Archives: national council on compensation insurance

excess

The State of Workers’ Comp in 2016

Over the last two years, employers and groups that self-insure their workers’ compensation exposures have enjoyed reasonably favorable terms on their excess insurance policies. Both premiums and self-insured retentions (SIRs) have remained relatively stable since 2014. This trend is likely to continue through 2016, but the long-term outlook for this line of coverage is less promising. Changing loss trends, stagnant interest rates, deteriorating reinsurance results and challenging regulatory issues are likely to have a negative impact on excess workers’ compensation insurance in the near future.

Predictions for 2016

Little direct information is available on the excess workers’ compensation marketplace even though written premiums well exceed $1 billion nationwide. Accurately forecasting changes in the marketplace is largely a function of the prevalent conditions of the workers’ compensation, reinsurance and financial marketplaces. But, based on available information, premium rates, retentions and policy limits should remain relatively flat on excess workers’ compensation policies for the balance of the 2016 calendar year. This projected stability is because of four main factors: positive results in the workers’ compensation industry over the last two years, availability of favorable terms in the reinsurance marketplace, an increase in the interest rate by the Federal Reserve at the end of 2015 and continued investment in value-added cost-containment services by excess carriers.

For calendar year 2014, the National Council on Compensation Insurance (NCCI) reported a 98% combined ratio for the workers’ compensation industry nationwide. In 2015, the combined ratio is projected to have improved slightly to 96%. This equates to a 2% underwriting profit for 2014 and a projected 4% underwriting profit for 2015. This is the first time since 2006 that the industry has posted positive results. The results were further bolstered by a downward trend in lost-time claims across the country and improved investment returns.

Reinsurance costs and availability play a significant role in the overall cost of excess workers’ compensation coverage. On an individual policy, reinsurance can make up 25% or more of the total cost. Excess workers’ compensation carriers, like most insurance carriers, purchase reinsurance coverages to spread risk and minimize volatility generated by catastrophic claims and adverse loss development. Reinsurers have benefited from underwriting gains and improved investment returns over the last three years. These results have helped to stabilize their costs and terms, which have directly benefited the excess workers’ compensation carriers and, ultimately, the policyholders that purchase excess coverage.

According to NCCI, the workers’ compensation industry has only posted underwriting profits in four of the last 25 years. This includes the two most recent calendar years. To generate an ultimate net profit and for the industry to remain viable on a long-term basis, workers’ compensation carriers rely heavily on investment income to offset the losses in most policy years. For the first time since 2006, the Federal Reserve increased target fund rates at the end of 2015. Although the increase was marginal, it has a measurable impact on the long-term investment portfolios held by workers’ compensation and excess workers’ compensation carriers. Workers’ compensation has a very long lag between the time a claim occurs and the date it is ultimately closed. This lag time is known as a “tail.” The tail on an excess workers’ compensation policy year can be 15, 20 and even as much as 30 years. An additional 0.25% investment return on funds held in reserve over a 20-plus-year period can translate into significant additional revenue for a carrier.

Excess workers’ compensation carriers have moved away from the traditional model of providing only commodity-based insurance coverage over the last 10 years. Most have instead developed various value-added cost-containment services that are provided within the cost of the excess policies they issue. Initially, these services were used to differentiate individual carriers from their competitors but have since evolved to have a meaningful impact on the cost of claims for both the policyholder and the carrier. These services include safety and loss control consultation to prevent claims from occurring, predictive analytics to help identify problematic claims for early intervention and benchmarking tools that help employers target specific areas for improvement. These value-added services not only reduce the frequency and severity of the claims experience for the policyholder, but excess carriers, as well.

Long Term Challenges

The results over the last two years have been relatively favorable for the workers’ compensation industry, but there are a number of long-term challenges and issues. These factors will likely lead to increasing premiums or increases in the self-insured retentions (SIRs) available under excess workers’ compensation policies.

Loss Trends: Workers’ compensation claims frequency, especially lost-time frequency, has steadily declined on a national level over the last 10 years, but the average cost of lost-time claims is increasing. These two diverging trends could ultimately result in a general increase in lost-time (indemnity) costs. Further, advances in medical technology, treatments and medications (especially opioids) are pushing the medical cost component of workers’ compensation claims higher, and, on average, medical costs make up 60% to 70% of most workers’ compensation claims.

Interest Rates: While the Federal Reserve did increase interest rates by 0.25 percentage point in late December, many financial analysts say that further increases are unlikely in the foreseeable future. Ten- year T-bill rates have been steadily declining over the last 25 years, and the current 10-year Treasury rate remains at a historically low level. A lack of meaningful returns on long-term investments will necessitate future premium increases, likely coupled with increases in policy retentions to offset increasing losses in future years.

Reinsurance: According to a recent study published by Ernst & Young, the property/casualty reinsurance marketplace has enjoyed three consecutive years of positive underwriting results, but each successive year since 2013 has produced a smaller underwriting profit than the last. In 2013, reinsurers generated a 3% underwriting profit followed by a 2% profit in 2014 and finally an underwriting profit of less than 1% in 2015. Like most insurance carriers, reinsurers utilize investment income to offset underwriting losses. As the long-term outlook for investments languishes, reinsurance carriers are likely to move their premiums and retentions upward to generate additional revenue, thus increasing the cost of underlying policies, including excess insurance.

Regulatory Matters: Workers’ compensation rules and regulations are fairly well-established in most states, but a number of recent developments at the federal and state levels may hurt workers’ compensation programs nationwide. The federal government continues to seek cost-shifting options under the Affordable Care Act (ACA) to state workers’ compensation programs. Later this year, state Medicaid programs will be permitted to recover entire liability settlements from state workers’ compensation plans – as opposed to just the amount related to the medical portion of the settlement. At the state level, there are an increasing number of challenges to the “exclusive remedy” provision of most workers’ compensation systems. Florida’s Supreme Court is currently deliberating such a challenge. Should the court rule in favor of the plaintiffs, Florida employers could be exposed to increased litigation from injured workers. A ruling against exclusive remedy could possibly set precedent for plaintiff attorneys to bring similar litigation in other states. Lastly, allowing injured workers to seek remedies outside of the workers’ compensation system would strip carriers and employers of many cost-containment options.

opt-out

Debunking ‘Opt-Out’ Myths (Part 6)

“Transparency” demonstrates whether a product or service has real value to society. It also promotes collaboration and process improvement. So, what does transparency mean, and how can the same standards be applied, in the context of workers’ compensation and the Texas and Oklahoma “options” to workers’ compensation? There are lessons all can learn on a path of progress.

Transparency in Workers’ Compensation

Transparency within the workers’ compensation industry has dramatically improved over the past 20 years, but some aspects remain translucent, at best.

From an insurance agent and employer perspective, workers’ compensation is too often viewed as a complex government mandate to be complied with in the easiest manner possible. Most employers do not have the wherewithal to affect significant claims, dissect an experience modifier or otherwise engage with workers’ compensation systems beyond the review of insurance quotes, the payment of premium and the initial filing of a claim. Who can blame them with so little information readily at hand?

For both employers and injured workers, most states provide little clear information on system rights and responsibilities. When was the last time you got on the Internet and reviewed all of an unfamiliar state’s workers’ compensation laws? Or attempted to find or build your own summary of benefits or claim procedures for an unfamiliar state workers’ compensation system? We go to the “For Employers” or “For Injured Workers” tab on the state system website but see only a high-level review of system benefit requirements and information on how to file a claim. But how is each form of benefit computed? When do they start and stop? What are the other exclusions and limitations on benefits? It is no wonder that employers and injured workers with concerns about their rights and responsibilities on a particular claim often engage legal counsel to navigate.

At a workers’ compensation regulatory level, a few states excel at providing meaningful information that is readily accessible. For example, the Texas Department of Insurance has a research and evaluation group that continually generates good information on system performance. But most states provide little (if any) data on actual workers’ compensation system performance. There is no universal standard or consistency in what scant workers’ compensation information on regulatory costs, injury claim costs, employee satisfaction or other outcomes is available from government agencies at no charge to the general public.

Many nongovernmental organizations (NGOs) do great work to fill this information void. The U.S. Chamber of Commerce, National Academy of Social Insurance (NASI), Workers’ Compensation Research Institute (WCRI) and other high-quality organizations provide helpful summaries of legal differences between state systems, as well as insightful claim data analyses. This information can be very useful to legislators, regulators and large employers, as well as insurance company executives and claim adjusters. It is rarely accessed by small business to affect their cost of workers’ compensation or by injured workers to advance their claim.

The largest workers’ compensation NGO is the National Council on Compensation Insurance. NCCI privatizes the collection and analysis of claims and other statistical data for nearly 40 states and hundreds of insurance companies. NCCI tackles the enormous challenge of making sense of data flowing in disparate fields across different technology platforms, with a talented staff of more than 900 employees. In 2014, NCCI generated $152 million in net sales, with assets of $151 million and total equity of $42 million, for its insurance company members.

Most NCCI data is proprietary and only available at significant expense to member insurance companies and certain state regulators. Only high-level summaries are provided to the general public, and most of that information is macro-focused on premium rate setting and insurance company profitability.

State regulators use NCCI loss-cost projections to help set insurance premium rates. Projected loss-cost reductions are commonly viewed as a direct monetization of recent workers’ compensation law reforms. However, insurance companies are allowed to substantially deviate from those expectations when setting premiums for individual employer policies. Some insurance companies may reduce actual premium rates just enough to maintain credibility in view of recent reforms but maintain premium rates at the highest possible level for the benefit of their shareholders. Workers’ compensation is a highly risky business to underwrite, and shareholders reasonably expect profits. But we should understand that NCCI’s projected loss-cost reductions and premium rate projections may or may not translate to the lower costs employers have been told to expect from reforms.

Transparency in Options to Workers’ Compensation

In comparison to workers’ compensation systems, the option industry is relatively new and does not have a similar, robust infrastructure of NGOs to fill the information voids. But interest in and movement toward option programs is growing daily, and option proponents are committed to transparency.

The states of Texas and Oklahoma begin the process by maintaining employer coverage lists. Texas maintains a searchable database of employers that carry workers’ compensation insurance and a list of employers that do not. Coverage is entirely voluntary in Texas, and employers on this latter list have self-reported (and most likely sponsor) an injury benefit plan.  The Texas Department of Insurance indicates that 95% of all Texas workers have either workers’ compensation or injury benefit coverage. Employers on neither Texas list are out of compliance with current legal reporting requirements and may have no workers’ compensation or injury benefit coverage for employees. Those are the companies that truly fit the derisive term “opt-out,” which is unique to Texas. The Oklahoma model and what other states are considering is a more highly regulated “option” to workers’ compensation. For the state of Oklahoma, every employer must have workers’ compensation or be approved as a “qualified employer” (https://www.ok.gov/oid/workerscompreform.html) that sponsors a legally compliant injury benefit plan and satisfies financial security requirements.

From an insurance agent or employer perspective, insurance companies writing option policies have long insisted on a higher level of engagement than is common in workers’ compensation. Such agent and employer engagement requires transparency and understanding. Transparency is emphasized through simple requirements for active, pre- and post-injury communication between employers and employees, particularly on the need for immediate injury reporting, use of approved medical providers and following doctor’s orders. Safety program integrity is also commonly verified, particularly in the Texas Option environment, where both injury benefit and simple negligence liability exposures are insured.

Option injury benefit plan documents and claim procedures have been widely available in the public domain since the early 1990s. These benefit plans are the functional equivalent of a state workers’ compensation statute, describing the plan’s funding, benefit payment and administration processes.

Insurance companies have brought transparency to, exercise substantial control over and bring consistency across a large number of option programs by requiring most employers to use standardized injury benefit plan documents. In Texas and Oklahoma, option insurance companies freely distribute to independent agents their template plan documents and policy forms that vary because of competition on the breadth of coverage. Insurance agents then review these documents (often on a checklist), along with claim procedures and safety requirements with employers interested in implementing or renewing an option program. Employer implementation of the standardized program, including communication to all covered workers, is a condition of the insurance coverage. All injury claims must then be managed by the insurance company’s owned or contracted claims unit.  Only large employers are allowed more flexibility to unbundle claims administration and make pre-approved customizations to their benefit plan.

Hundreds of papers, articles, interviews and presentations that provide good information on options to workers’ compensation have been available over the past two decades. For example, http://www.partnersource.com/media/35242/partnersource_media_compilation_for_publication_1-21-2016.pdf. An abundance of information is available now, and this library is growing.

For injured workers, Option plans provide substantially greater transparency than workers’ compensation. Every employee covered by an option plan sponsored by a private employer must be provided a detailed summary plan description (SPD) in accordance with the Employee Retirement Income Security Act. In plain language, the SPD must explain how the plan works, what benefits are available, how those benefits are provided, any exclusions and limitations applying to those benefits and the employee’s rights and obligations under the plan. A highlights section is commonly included at the front of the SPD.

The SPD must be provided within 90 days of an employee becoming covered by an option plan but is routinely provided at the time of hire. Any material change to the plan must also be communicated. All of this information must be provided to each employee in a hard copy or electronically in a manner that satisfies regulatory standards. Another copy of the SPD is also available at any time upon request. Interpretive assistance is required for non-English reading employees.

This transparency fosters employee appreciation for the program, as well as compliance with the accountability requirements found in option benefit plans. Open communication from employers promotes faster accident reporting, earlier medical diagnosis and treatment, a reduction in the number of disputes and less dependence on regulators and lawyers for basic information and claims support.

Every covered employee and beneficiary also has access to the official injury benefit plan document and their claims information. Employers that fail to provide requested information face monetary penalties. Plan participants can include information in and otherwise affect their claim file, and have access to state and federal courts for benefit disputes.

Though available to plan participants, publication of option benefit plans for review by the general public is not required by law. Oklahoma Option benefit plans were publicly available until the 2015 Oklahoma legislature decided to provide broad confidentiality of qualified employer application files in an effort to mirror the application file confidentiality of self-insured employers under workers’ compensation. The idea of establishing a public database of SPDs has also historically proven impractical. For decades, the federal government required employers to file a copy of the SPD for every employee benefit plan. That filing requirement was eliminated in 1997 because the government could not efficiently store the documents, such documents were rarely requested by the public and the related employer and taxpayer expense was deemed wasteful. Perhaps this subject should be revisited in the electronic age.

At a system performance level, most option employers are small companies, with owners relying on their independent insurance agent for periodic updates on their own program performance. But there are also thousands of other workers’ compensation industry professionals who understand and support option programs. Many sophisticated, Fortune 500 risk managers, who are very aware of their brand value and most important asset manage option programs that cover billions of dollars in payroll. Many “A”-rated insurance companies support the option insurance marketplace and write approximately $150 million in annual premiums. Employers, insurance companies and many nationally recognized third party administrators and brokers successfully support resolution of tens of thousands of option injury claims every year. And several nationally respected actuarial firms have confirmed option program success for their clients.

Self-interested opponents of option programs like to theorize about bad things that might happen under an option program, and falsely proclaim that option program savings only occur at the expense of injured workers. But what option industry professionals know from actual experience is that savings come from fewer employees being taken off work, faster return to work for employees who have been disabled and fewer disputes. This all speaks to better outcomes for injured workers and less cost-shifting to state or federal government programs. Those are the facts that truly deserve more transparency and study by policymakers. These facts are already reflected in many studies and reports recently summarized and released as Part 2 of a “Resource Guide” from the Association for Responsible Alternatives to Workers’ Compensation.

Data on tens of thousands of Texas option claims is now in the hands of many insurance companies, third-party administrators and others. For example, PartnerSource prepares statistically credible claim analyses for many individual employers annually and conducts biennial benchmarking studies of Texas option claims across six different industries, covering billions of payroll and hundreds of thousands of workers. These benchmarking studies include sub-industry segmentation and data on the types of benefits, dollar/duration/percentage limits and other injury benefit plan terms most commonly used among option employers, as well as the insurance types, limits and retention levels.

Consider this good-faith snapshot of Texas option industry aggregate data: [http://www.partnersource.com/media/34154/texas_option_data_review_for_publication_1-22-16.pdf]. Similar, expanded data reports, reviewed by independent actuaries, are expected in 2016.

Better-established processes within private industry for aggregating claims data and collective insurance premium price setting seen in the workers’ compensation environment are simply not present today and have not been urgently needed in the option environment. For example, employers that sponsor option programs have focused on the results of their own individual programs. Option insurance companies individually set their own premium rates in a competitive environment, unsupported by the exemptions to antitrust laws and other protections enjoyed by the workers’ compensation insurance industry. Unlike in days of old, insurance companies and individual employers are able to collect and analyze a significant volume of data from their own experience, as well as other publicly available information, to chart their own destiny – something some option opponents fear most.

Undoubtedly, more option industry aggregate data would be instructive and helpful to employers, insurance companies, legislators, regulators and other policymakers. But there is nothing nefarious in the lack of publicly available option data today, and option programs should not be held to a standard higher than workers’ compensation. All of the above-named NGOs that generate workers’ compensation system data have had decades to organize, refine, obtain many millions of dollars in funding for and publish industry aggregate and state-specific information. Data collection and reporting efforts in the option environment are in an early stage of development but can be expected to steadily advance.

This process of gaining additional option industry transparency must be about more than satisfying voyeuristic curiosity. We must also distinguish between what is needed “for the public good” and the self-interest of certain option opponents. Even with approximately 50,000 injuries occurring outside of the Texas and Oklahoma workers’ compensation systems every year, we’ve seen no credible evidence to indicate that workers’ compensation systems generally perform better than option programs in any respect, and option opponents remain unable to muster more than a few anecdotes about option claims that have gone awry. Perhaps this will change as more option claims data becomes publicly available, but it will require independent verification through access to workers’ compensation system data that should also become more publicly available.

Lastly, this process of gaining more option industry transparency must be about more than collecting data at unnecessary taxpayer expense for the sake of saying it has been collected. Note that substantial reporting of option program information has been reported to the state of Texas (on Forms DWC-5 and DWC-7) and the federal government (on Form 5500) at significant employer and taxpayer expense for decades but has not been used for any purpose. So, it should come as no surprise when employers, insurance companies and service providers are unable to support new data reporting mandates without a clear articulation of both the need and value, including regulatory commitment and funding to collect, sort, analyze and report such data.

The Texas Alliance of Nonsubscribers took a neutral position on bills that would have added new option program claims reporting requirements in the 2015 Texas Legislative Session. The alliance is actively working with the Texas Division of Workers’ Compensation to improve employer compliance with and the usefulness of current reporting requirements and to extend workers’ compensation or injury benefit plan coverage to more Texas workers.

Accepting the Call for Option Program Improvements and More Transparency 

Employers and industry supporters of options to workers’ compensation support more public disclosure of program terms, claims data and other information and are actively working to achieve it. For example, option program improvements will likely be seen in 2016 as both Texas and Oklahoma employers and insurance companies positively respond to the past year’s dialogue and claims experience by broadening injury benefits coverage for hundreds of thousands of injured workers. Option programs are able to respond to important needs much faster than hyper-regulated systems that only change after protracted legislative and rulemaking processes. New option legislation introduced in other states will also reflect significant enhancements over prior proposals.

Industry conferences are also responding to the need for more information on options to workers’ compensation. This topic has been featured at many professional and regulatory conferences in the past year, and more are scheduled in 2016. In view of widespread interest and the fact that option programs today cover more workers than 23 individual state workers’ compensation systems, these and other national workers’ compensation events should consider going beyond the one-hour session overview or debate. They can include an entire educational track that allows attendees to become truly knowledgeable about option program design, implementation, administration and regulatory requirements.

Investigations of options to workers ‘compensation by the National Conference of Insurance Legislators, International Association of Industrial Accident Boards and Commissions and the U.S. Department of Labor will also be welcomed.

More transparency and transformative change can result when option opponents and supporters simply sit down to work together. Whether discussing injury reporting requirements, compensability, medical expense coverage, financial security or other important public policy issues, civil dialogue matters. Those who are willing to have a reasoned discussion and information exchange will find ready partners on the current path of progress. Because sooner or later, all industries tend to change for the better, and we should be prepared to lead that change or adapt.

Workers’ Comp Issues to Watch in 2015

Tis the season for reflections on the past and predictions for the future. As we kick off 2015, here are my thoughts on the workers’ compensation issues to watch this year.

What Does TRIA’s Non-Renewal Mean for Workers’ Compensation?

Thanks to congressional inaction, a last-minute rewrite added this subject to the issues for this year. I’m not about to predict what Congress will do with TRIA legislation in 2015, as there are no sure things in the legislative process. We have already seen the reaction from the marketplace. Back in February 2014, carriers started issuing policies that contemplated coverage without the TRIA backstops. We saw some carriers pull back from certain geographic locations, and we also saw some carriers change the terms of their policies and only bind coverage through the end of the year, giving themselves the flexibility to renegotiate terms or terminate coverage if TRIA wasn’t renewed. But while some carriers pulled back in certain locations, others stepped up to take their place. While some carriers tied their policy expiration to the expiration of TRIA, other carriers did not.  Going forward, some employers may see fewer carrier choices and higher prices without the TRIA backstop, but ultimately most employers will still be able to obtain workers’ compensation coverage in the private marketplace. Those that cannot will have to turn to the State Fund or assigned risk pool.

Rising Generic Drug Prices

The opioid epidemic, physician dispensing and the increased use of compound drugs are issues the industry has faced for years. While these issues continue to be a problem, I want to focus on something that is getting less attention. Have you noticed that the costs for generic prescription drugs are increasing, sometimes significantly? In the past, the focus was on substituting generic drugs for brand names, which provided the same therapeutic benefit at a fraction of the costs.  But now the rising costs of these generic medications will drive costs in 2015. These price increases are being investigated by the Federal Drug Administration (FDA) and Congress, but I do not expect this trend to change soon.

Medical Treatment Guidelines

Another issue to watch on the medical side is the continued development of medical treatment guidelines and drug formularies in states around the country. This is a very positive trend and one that our industry should be pushing for. There is no reason that the same diagnosis under workers’ comp should result in more treatment and longer disability than the same condition under group health. One troubling issue that I see here is the politics that come into play. Sorry, but I do not accept that human anatomy is different in California or Florida than in other states. I feel the focus should be on adopting universally accepted treatment guidelines, such as Official Disability Guidelines, or “ODG,” rather than trying to develop state-specific guides. The ODG have been developed by leading experts and are updated frequently. State-based guidelines often are influenced by politics instead of evidence-based medicine, and they are usually not updated in a timely manner.

How Advances in Medical Treatment Can Increase Workers’ Comp Costs

There is one area in which advances in medicine are actually having an adverse impact on workers’ compensation costs, and that is in the area of catastrophic injury claims. Specifically, I’m referring to things such as brain injuries, spinal cord injuries and severe burns. Back in 1995, Christopher Reeve suffered a spinal cord injury that left him a quadriplegic. He received the best care money could buy from experts around the world, and he died less than 10 years after his injury.  But as medicine advances, we are now seeing that a quadriplegic can live close to normal life expectancy if complications can be avoided. Injuries that used to be fatal are now survivable. That’s great news. The downside for those paying the bills is that surviving these injuries is very costly. The cost of catastrophic medical claims used to top off around $5 million, with a $10 million claim being a rarity. Now, that $10 million price tag is becoming more the norm.

The Evolving Healthcare Model

For years, workers’ comp medical networks focused on two things: discount and penetration.  Sign up as many physicians as you can as long as they will agree to accept a discount below fee schedule for their services. I’m happy to say that we are slowly, finally, evolving away from that model. Payers are realizing that a better medical outcome for the injured worker results in lower overall workers’ compensation costs, even if that means paying a little more on a per-visit basis. We are now seeing larger employers developing outcome-based networks, not only for workers’ compensation, but for their group health, as well. Employers are also starting to embrace less traditional approaches such as telemedicine. Finally, more and more employers are recognizing the importance that mental health plays in the overall wellness of their workforce. In the end, we are slowly starting to see is a wellness revolution.

The Need for Integrated Disability Management

The evolving healthcare model is tied directly to an evolving viewpoint on disability management. More employers are realizing the importance of managing all disability, not just that associated with workers’ compensation claims. Employees are a valued asset to the company, and their absence, for any reason, decreases productivity and increases costs. I feel this integrated disability management model is the future of claims administration. Employers who retain risk on the workers’ comp side usually do the same thing with non-occupational disability. These employers are looking for third-party administrators (TPAs) that can manage their integrated disability management programs. And make no mistake: Having an integrated disability management program is essential for employers. Human resource issues such as the Americans With Disabilities Act (ADA) and the Family and Medical Leave Act (FMLA) cross over into the workers’ compensation realm. The same interactive process required on non-occupational disability is required in workers’ compensation. Employers must be consistent with how they handle any type of disability management, regardless of whether the cause is a workers’ compensation injury or non-occupational.

Will We See a Push for ‘Opt Out’ in Other States?

Most people know that non-subscription, or opt out, has been allowed in Texas for many years. The Oklahoma Option that started last year is viewed as a much more exportable version of opt out. Under this system, employers can opt out of workers’ compensation, but they must replace it with a benefit plan that provides the same (or better) benefits available under traditional workers’ compensation. While some view the Oklahoma Option as the start of an opt-out revolution, it is just too early to tell what impact it will ultimately have. But, make no mistake, discussions about opting out are spreading to other states. A group called the Association for Responsible Alternatives to Workers’ Compensation is currently investigating the possibility of bringing opt out to other states. I expect to see opt-out legislation in a handful of other states in the next three to five years.

Marijuana

Marijuana legislation is a very hot topic these days.  In national polls, the majority of Americans favors legalization of marijuana in some form.  Recreational use of marijuana is now legal in four states (Colorado, Washington, Oregon and Alaska), and 23 states allow medical marijuana. When it comes to workers’ compensation, much of the attention has been focused on medical marijuana as a treatment option for workers’ comp because a judge in New Mexico allowed this last year. My concern is around employment practices. Employment policies around marijuana have been centered on the fact that it is illegal, so any trace in the system is unacceptable. That is going to change. I fully expect the government to reclassify marijuana from Schedule I to Schedule II in the next few years. When that happens, zero-tolerance policies in the workplace will no longer be valid. Instead, the focus will have to be like it currently is with alcohol: whether the person is impaired.

The Next Pandemic

Another hot topic these days is Ebola. While the threat from this particular disease seems to be subsiding, the concerns about Ebola last year showed we are not ready for that next pandemic. People who were exposed to the disease were allowed to interact with the general population and even use commercial travel. Government agencies debated whether travel to certain countries should be limited. The problem is, diseases don’t wait for a bureaucracy to make decisions. While this threat didn’t materialize, you can see how easily it could have. With work forces that travel around the globe, the threat of a global pandemic is very real. You know where you send your workers as part of their job, but do you know where they go on vacation? As an employer, are you allowed to ask about what employees do during their personal time? Are you allowed to quarantine an employee who traveled to an infected country during vacation? These are very complex legal questions that I cannot answer, but these are discussions we need to be having. How do we protect our employees from the next pandemic?

Rates and Market Cycle

You cannot have a discussion around issues to watch without talking about insurance premium rates in workers’ compensation. After several years of increasing rates around the country, the National Council on Compensation Insurance (NCCI) is projecting that, in 2014, workers’ compensation combined ratios were below 100% for the first time since 2006. This means that, as an industry, writing workers’ compensation is profitable again. So what should buyers expect in 2015? Well, it depends. California continues to be a very challenging state for workers’ compensation costs. New York is challenging, as well. Given the percentage of the U.S. workforce in those two states, they have significant influence on the entire industry. Some employers will see rate reductions this year, and some will not. In the end, your individual loss experiences will determine what happens with your premiums. That seems to be the one constant when it comes to pricing. Employers with favorable loss experiences get lower rates, so it pays to stay diligent in the areas of loss prevention and claims management.

Will We See More Constitutional Challenges Similar to Padgett in Florida?

While I don’t think the Padgett case will be upheld on appeal, I am concerned that the case is the first of many similar ones we could see around the country. Look at the main arguments in Padgett: The workers’ compensation system is a grand bargain between injured workers and employers. Workers gave up their constitutional right to sue in civil courts in exchange for statutorily guaranteed, no-fault benefits. Over the last 20 years, many workers’ comp reform efforts around the country have focused on lowering employer costs. Standards of compensability have been tightened. Caps have been put on benefits. The judge in Padgett looked at these law changes and ruled that workers’ compensation benefits in Florida had been eroded to the point where it was no longer a grand bargain for injured workers. He ruled that the workers’ compensation statutes were unconstitutional on their merits because the benefits provided are no longer an adequate replacement for the right to sue in civil court that that the workers gave up. Attorneys tend to mimic what succeeds in other courts, so I expect we are going to be seeing more constitutional arguments in the future.

Impact of the Evolving Workforce

One of the biggest issues I see affecting workers’ compensation in 2015 and beyond is the evolving workforce. This takes many forms. First, we are seeing technology replace workers more and more. When was the last time you went to a bank instead of an ATM? I have seen both fast food and sit-down restaurants using ordering kiosks. Also, we are seeing more use of part-time vs. full-time workers. Some of this is driven by concerns around the Affordable Care Act. But part-time workers also have fewer human resource issues, and their use allows employers to easily vary their workforce based on business needs. Unfortunately, part-time workers are also less-trained, which could lead to higher injury frequency. Finally, the mobile work force is also creating concerns around workers’ compensation. Where is the line between work and personal life when you are using a company cell phone, tablet or computer to check e-mails any place, any time? Where do you draw the line for someone who works from home regularly? There have been numerous court cases around the nation trying to determine where that line is. This is a very complex and evolving issue.

To view a webinar that goes into these topics in more detail, click here: https://www.safetynational.com/webinars.html

Paging Dr. Evil: The War Over Opioids

Over the past several years, the epidemic of prescription drug abuse under the guise of “pain management” has generated headlines all across the country. The improper use of Schedule II medications in the workers’ compensation system is a part of this public health crisis. Publications by the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute (CWCI) and the National Council on Compensation Insurance (NCCI) have underscored not only the costs of such abuse but the tragic consequences to those who, through no fault of their own, have been consigned to a life of addiction and disability. Those tragedies are unnecessary and avoidable.

When it comes to workers’ compensation, the payer community has been at war with the provider community for generations. In some respects, the debate can be reduced to a clash of two business models  — the claims payer wants to reduce workers’ compensation costs while providing mandated medical care, while the care provider must build a business model around a dazzling array of payment (and paperwork) systems to maintain profitability. It is, in part, the economics of healthcare that so confounds payers and so stymies providers who are honest and ethical but who nevertheless still have to keep their offices open and a roof over their heads.

But consigning the issue of opioid abuse to this paradigm is too easy an exercise.

Equally significant, regrettably, are the problems associated with the insular world of workers’ compensation and how regulatory decisions are made within this highly regulated, if not suffocating, environment.

Some states get the process right. Oregon and Washington have transparent and inclusive processes to engage claims payers, worker representatives, providers and regulators on important issues of occupational medicine. The Oregon Medical Advisory Committee has as its charge: “…to advise the director, with a diversity of perspectives, on matters relating to the provision of medical care to injured workers. The ‘director’ is the director of the Department of Consumer and Business Services or the administrator of the Workers’ Compensation Division (WCD).” That’s a lot larger charge than adopting treatment guidelines in a rule-making process.

In Ohio, Gov. Kasich’s Opiate Action Team developed prescribing guidelines in a process that involved all key public and private stakeholders: “The clinical guidelines are intended to supplement — not replace — the prescriber’s clinical judgment. They have been endorsed by numerous organizations, including: Ohio State Medical Association, Ohio Osteopathic Association, Ohio Academy of Family Physicians, Ohio Chapter of the American College of Emergency Physicians, Ohio Pharmacists Association, State Medical Board of Ohio, Ohio Board of Nursing, Ohio State Dental Board, Ohio State Board of Pharmacy, Ohio Hospital Association, Ohio Association of Health Plans and the Ohio Bureau of Workers’ Compensation.” Like Washington, Ohio maintains a monopolistic state fund to provide workers’ compensation benefits. Ohio’s Bureau of Workers’ Compensation uses the same guidelines as every other provider of medical services.

And, of course, there is the large body of work being done by the Agency Medical Directors Group in Washington. That entity coordinates medical treatment among all state agencies providing medical care, including their state-run workers’ compensation program at the Department of Labor and Industries. Professional licensing boards and medical associations are also an integral part of that process.

Why aren’t these collaborative initiatives the template for further prescription drug reforms in states like Arizona or California? The much-lauded Texas closed formulary wasn’t created in a vacuum, and policymakers in that state recognized that open (“legacy”) claims required special treatment. As reported in TexasMedicine, the publication of the Texas Medical Association, “The regulations require physicians and carriers to formally discuss the pharmacological management of these patients. Ideally, the two parties would agree before Sept. 1 (2013) on how to proceed. That agreement could include a weaning schedule, a plan to continue the patient on the N drug or other alternatives.” California didn’t do that when making the transition from a judicial medical dispute resolution process to independent medical review, and Arizona has on the table a review/dispute process that will be equally jarring for open claims

It would be remarkably naïve to suggest that a more transparent approach to the development and application of treatment guidelines and having processes in place that encourage a peer-to-peer dialogue between requesting and reviewing physicians would result in an immediate drop in prescription drug abuse. But it would also be remarkably cynical to proclaim that the approach won’t have an effect.

The current workers’ compensation monologues over Schedule II drugs needs to be replaced with a dialogue that has as its goal not only the delivery of appropriate care to those who will be injured at work in the future but that also addresses the sad legacy of the abuses of past decades and offers help to those who so desperately need it now.

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.