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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.

Experience Mod Is Losing Key Role

The insurance industry has a reputation for being slow to change, but the “big data” revolution is driving significant changes in workers’ compensation underwriting. The emerging use of “big data” analytics in underwriting is diminishing the purpose and value of the experience modification factor and beginning to affect middle-market agents and their clients.

Big data has already redefined industries like retail (Amazon), entertainment (Netflix) and content publishing (Facebook). Stock and mortgage brokers are well ahead of insurance with their own predictive models. Big data in insurance is still under the radar for many, but it’s beginning to affect pricing and how agents work with their middle-market clients.

The National Council of Compensation Insurance’s (NCCI) experience rating plan was created to adjust premium costs to reflect “the unique claims experience of each eligible individual employer relative to other employers within the same industry group.” The experience rating plan helps insurers charge the appropriate premium for an individual employer’s work comp policy. Or, as one actuary stated, “The experience mod is a predictive indicator of future losses.” Traditionally, a higher experience mod predicts that the employer will have greater than expected losses in the coming policy period, so the insurer needs additional premium for the risk.

Many experts would agree that the experience rating plan, created in the 1930s, has historically served the insurance industry well. However, we are entering a new era where individual insurers are building their own predictive analytics models because of:

  • Recent and swift explosion of huge databases;
  • Inexpensive computing power and data storage; and
  • Advances in data acquisition and aggregation from multiple sources.

Computer hardware and software advancements, along with smart people, now allow insurers to quickly process millions of calculations, analyze the data they produce and promptly validate their emerging predictive models. Prior to these technological advances, insurers relied on the rating bureaus, such as NCCI, to collect and manage the data.

In addition, there are significant inefficiencies in the rating system that data-savvy insurers can leverage to gain a competitive advantage. For example, they can analyze their own data instead of relying on the rating bureau’s broader, aggregate view to create a competitive advantage.

Let’s assume the rating bureau’s data indicates that claim costs are rising for plumbers in a given state. The rating bureau will likely increase advisory and expected loss rates for plumbers in the entire state. However, an individual insurer may analyze its own book of business and see a decrease in claims costs for that state’s plumbers. The carrier could set a lower premium for plumbers and capture greater market share from competitors that only use aggregated rating bureau data.

It’s no surprise that large global actuarial and consulting firms are working with insurers to develop and enhance predictive models. Insurers already possess a treasure trove of data just waiting for those, affectionately known as “data nerds,” to spin it into gold. As one actuary from a well-known consulting firm said at a recent industry conference, “Underwriters have been using about six to eight data points to determine acceptability and pricing of a risk. We can build them a model with 400 to 600 data points.”

Big data brings big opportunities to insurers and agents; however, as with any collision of old-world and new-world methodologies, there will be some challenges and casualties. For example, let’s assume an underwriter receives an application for a workers’ compensation renewal, and the experience modification factor is renewing lower than the prior year. And the governing class code advisory rate is lower, as well.

However, the insurer’s predictive model indicates an increase in pricing is needed. As a result, the underwriter removes the scheduled credit and adds a scheduled debit to the pricing. Now, the agent has to explain an unexpected higher premium to the client.

Or, worse, the underwriter cannot even make an offer because the maximum allowed scheduled debit will not provide the pricing needed, according to the predictive model. In this case, an applicant’s reduced experience modification factor actually prevented the employer from getting a renewal offer from its current or preferred insurer. This may seem crazy, but when you add more and new data to a pricing model, you often get a different indicator.

Enhanced data analytics can turn traditional rating and pricing upside down. The purpose of the rating bureau’s experience rating plans is to assist the insurers appropriately set a price for the risk. However, with advanced analytics and regulations mandating the use of the experience mod, employers may find themselves in the residual market because the insurer was unable to make an offer at their price.

Workers’ compensation experience rating and experience modification factors are not going away any time soon; they are enmeshed into each state’s regulatory and statutory framework. And not all insurers will create and use their own predictive models, so some will continue to rely on the rating bureaus. However, you’re probably beginning to see anomalies between the old world of “predictive indicators of future losses” and the new world of insurance-specific predictive analytics.

Agents must not only be aware of these underwriting changes but must educate their clients and prospects. The brightest future belongs to employers that can move the loss data in the right direction over the long term. The agent’s role is to help them establish processes to make that happen.

As with most leadership challenges, agents need to start with a new conversation and dialog. Questions might include:

  • Are you aware of how the “big data” revolution is affecting your insurance program and pricing?
  • Has anyone shared with you how the insurance company’s underwriting process is going through its most dramatic change in more than 50 years?
  • Have you taken steps to adapt and align your business objectives and risk management practices to leverage this new approach?

Agents often say they want a way to differentiate in a crowded and noisy marketplace.  This underwriting revolution presents a sustainable competitive advantage to those willing to invest in gaining knowledge and expertise.

Would a Formulary Help in California?

Introducing a closed pharmaceutical formulary into California workers’ compensation could produce two main benefits. The first is to further lower the cost of pharmaceuticals by either restricting or eliminating certain medications. The second is to reduce the possibility of drug addiction.

An October 2014 California Workers’ Compensation Institute (“CWCI”) report titled, “Are Formularies a Viable Solution for Controlling Prescription Drug Utilization and Cost in California Workers’ Compensation” states that pharmaceutical costs could be reduced by 12%, or $124 million, by introducing the Texas workers’ compensation pharmaceutical formulary.

To achieve the second benefit, an assembly member introduced AB1124 to establish an evidence-based medication formulary and wrote, “The central purpose of our workers’ comp system is to ensure injured workers regain health and get back to work. When workers get addicted to dangerous medications, goals of the program are not met. An evidence-based formulary has proven to be an effective tool in other states and should be considered in California.”

To confirm whether these benefits could be achieved through the introduction of the Texas formulary, a review of the CWCI study and the opioid medications available under the Texas formulary was conducted. The findings, summarized below, suggest that the answer is no.

Although California does not restrict or limit medications in treating injured workers, it does limit the prices paid and provides an opportunity to question prescribed medications that appear to be out of the ordinary. Medi-Cal prices (California’s Medicaid health care program) are used for establishing the maximum prices for workers’ compensation medications, in contrast to states such as Texas, which use the average wholesale price (AWP).

A review of two cost-saving examples that referenced specific medications calculated projected savings based on CWCI’s ICIS payment data for prescriptions paid between Jan. 1, 2012 and June 30, 2013.

The first example compared 50mg Tramadol prices from five different suppliers. The highest was $190, followed by $23, $18, $12 and $8 per script. Here, CWCI suggested that the manufacturer of the highest-priced script be removed from the California formulary. From mid 2009 through 2013, however, the unit price for 50mg Tramadol from the supplier of brand name Ultram and at least 10 other suppliers in California was nine cents, so the AWP for a script was $2. So, overpaying for medications is an issue even if the $190 supplier is removed.

The Workers’ Compensation Research Institute (WCRI) also reported that California claims administrators paid a unit price of 35 cents for 5mg Cyclobenzaprine and 70 cents for 10mg while the unit price from Californian suppliers was 10 cents for 10mg and 15 cents for 5mg. Again, the prices suggest that California claims administrators were paying more than the maximum prices.

Based on randomly selected manufacturers and strengths of the top 20 medications identified in the 2013 NCCI prescription drug study, California’s prices were on average 20% lower than the AWP and in some cases as little as 1/24th the cost. California prices were found to be at the lowest retail price range compared with those published on goodrx.com. Pharmacies located in Los Angeles, Miami and Dallas were used for comparison. Findings suggested employers in California workers’ compensation are paying no more than the general public for medications, whereas in Texas employers are paying more by using the AWP.

The second example compared script prices of seven opioid agonists, including Tramadol and Oxymorphone. Oxymorphone was the highest-priced script at $600 and Tramadol the lowest at $60 per script, suggesting a saving of as much as $540 if Tramadol were to be prescribed instead of Oxymorphone.

But prescribing oxymorphone when tramadol could suffice or vice versa could be regarded as an act of gross negligence by the physician. On the World Health Organization (WHO) analgesic ladder, tramadol and codeine are weak opioids regarded as “step two” while acetaminophen and NSAIDs are “step one.” “Step three” opioids include medications such as morphine, oxycodone and oxymorphone, which all differ in their pharmacodynamics and pharmacokinetics, so choosing one or more to treat pain becomes a balance between possible adverse effects and the desired analgesic effect. Oxymorphone (stronger than morphine or oxycodone) is recommended for use only when a person has not responded to or cannot tolerate morphine or other analgesics to control their pain.

A list of opioid medications published by Purdue Pharma was used to identify which opioids were excluded from the Texas formulary. The list of more than 1,000 opioid analgesics was prepared by Purdue to comply with the state of Vermont law 33 V.S.A. section 2005a, requiring pharmaceutical manufacturers to provide physicians with a list of all drugs available in the same therapeutic class. Being in the same class, however, does not necessarily mean they are interchangeable or have the same efficacy or safety.

The list showed available strengths and included (1) immediate and extended release, (2) agonists such as fentanyl, oxycodone, hydrocodone, oxymorphone, tramadol, codeine, hydromorphone, methadone, morphine, tapentadol and levorphanol and (3) combinations such as acetaminophen with codeine, oxycodone with acetaminophen, oxycodone with asprin, oxycodone with ibuprofen, hydrocodone with acetaminophen, hydrocodone with ibuprofen, acetaminophen-caffeine with dihydrocodeine, aspirin-caffeine with dihydrocodeine and tramadol with acetaminophen.

It appears that extended-release medications used for around-the-clock treatment of severe chronic pain have been excluded or are not listed in the Texas formulary, with a few exceptions. For example, 80mg OxyContin (Oxycodone) ER 12 hour (AWP $18, Medi-Cal $15) is excluded. 120mg Hysingla (Hydrocodone) ER 24 hour (AWP $41, Medi-Cal $34) is not listed. However, 200mg MS Contin (Morphine) ER 12 hour (AWP $31, Medi-Cal $26) and 100mcg Fentanyl 72 hour transdermal patch in both brand name and generic forms are approved under the Texas formulary. Immediate-release generic medications such as oxycodone, hydromorphone and hydrocodone with acetaminophen in all strengths are approved, but immediate-release hydrocodone with ibuprofen and oxymorphone in either immediate or extended release are excluded.

Would the objective of AB1124 be achieved by utilizing the Texas formulary? The above review suggests it would not. All the opioid medications available through the Texas formulary have the potential to cause addiction and be abused, possibly leading to death either accidentally or intentionally. As an example, the executive director of the Medical Board of California has filed accusations against Dr. Henri Eugene Montandon for unprofessional conduct including gross negligence. His patient was found dead with three 100mcg fentanyl patches on his upper chest. The autopsy revealed he potentially had toxic levels of fentanyl, codeine and morphine in his bloodstream at time of death. These three opioids are available under the Texas formulary.

An article published on the website www.startribune.com described the challenges in treating returning soldiers from combat duty. The article discusses Zach Williams, decorated with two Purple Hearts who was found dead in his home from a fatal combination of fentanyl and venlafaxine, an antidepressant. Venlafaxine in both immediate- and extended-release form is approved in the Texas formulary. In addition, the following statement was made in a 2011 CWCI study into fentanyl: “Of the schedule II opioids included in the Institute’s study, the most potent is fentanyl, which is 75 to 100 times more powerful than oral morphine.”

The top 20 medications identified by the 2013 NCCI prescription drug study were also compared with the Texas formulary, and six medications were found to be excluded, including three extended-release opioids, OxyContin (Oxycodone), Opana ER (Oxymorphone) and the once-daily Kadian ER (Morphine). The twice-daily, extended-release morphine MS Contin, however, was approved. Flector, a non-steroidal anti-inflammatory transdermal patch used for acute pain from minor strains and sprains, was excluded, as was carisoprodol a muscle relaxant classified by the DEA as a Schedule IV medication (the same as Tramadol). The Lidocaine transdermal patch, which is a local anesthetic available in both brand name and generic. was also excluded. Lidocaine patches have been found to assist in controlling pain associated with carpal tunnel syndrome, lower back pain and sore muscles. Apart from carisoprodol, it would appear the remaining five were excluded from the Texas formulary because of their high price rather than concerns regarding their safety or potential for abuse.

The U.S. Food and Drug Administration (FDA) is responsible for the approval of all medications in the U.S. Its approved list is the U.S. pharmacy formulary (or closed formulary). California workers’ compensation uses this list for treatment and the Medi-Cal formulary for medication pricing. In comparison, Texas workers’ compensation uses its own formulary, which is a restricted list of FDA-approved medications, and pays a higher price for approved medications than California’s system does.

Implementing an evidence-based formulary, such as in Texas, may result in an injured worker’s not having the same choice of medications as a patient being treated for pain under California’s Medicaid healthcare program. How can this be morally justified? Will we see injured workers paying out-of-pocket to receive the medications necessary to control their pain?

Claims administrators can greatly reduce pharmaceutical costs through their own initiatives by (1) ensuring that they pay no more than the Department of Industrial Relations (DIR) published price for a medication, (2) ensuring that physicians within their medical provider network (MPN) treat pain using the established pharmacological frameworks such as the WHO analgesic ladder, (3) ensuring that quantities and medication strengths are monitored, along with how a person has responded to analgesics, (4) ensuring that, when controlling pain with opioids, there is a heightened awareness for potential abuse, misuse and addiction, (5) establishing a multimodal pain management regimen including non-pharmacological therapies such as acupuncture, aerobics, pilates, chiropractic and physical therapy tailored to a person’s medical condition and, (6) for chronic pain, considering introducing an Internet-delivered pain management program based on the principles of cognitive behavioral therapy.

The progress of many of these initiatives can be automatically monitored through a claims administrator’s technology solution, where a yellow or red flag is raised when prices paid exceed the legislated maximum amounts, when a pharmacological step therapy or progressive plan has been breached or when non-pharmacological therapy goals have not been achieved.

Using these initiatives, as opposed to restricting specific manufacturers or medications through a closed formulary, will undoubtedly yield a far better outcome for the injured worker and lower the cost to the employer, benefiting all involved.

What Does ‘Data-Driven’ Really Mean?

The more things change, the more they stay the same. What remains constant are the fundamentals of what makes insurance a well-capitalized, reliable cornerstone of the U.S. economy. The basic model of assessing risk, collecting insurance premiums, investing and paying claims still works. What’s been completely upended is how carriers evaluate and acquire the best risks – and how much more important effective risk evaluation is today.

Advanced data and predictive analytics have changed the customer acquisition and retention game. When an insurer can pinpoint which policies are going to be the most profitable 10% and also know that same small segment is delivering 50% of total profit, you know the rules have changed.

The chart below represents a study of the portfolios from a diverse set of commercial insurers and lines of business. The study shows that that this surprising statistic holds true across companies. It helps demonstrate the real advantage — and potential threat — of data analytics. The insurer that can accurately identify the best 10% of the market is going to be able to compete on, and win, this business.

chart 1

What does being data-driven mean in practice?

Information is a business enabler; you don’t need to embark on “big data” or predictive analytics initiatives just for the sake of them. You shouldn’t feel pressured to lead the rallying cry to become a data-driven organization because everyone is talking about it. You consume data to gain insights that will solve problems that matter and achieve specific objectives.

Data-driven decision making is a commitment and a passion to go beyond the limits of heuristics, because you know it’s necessary to reach a new level of understanding of where your business is today and where it’s headed in the near term. Data-driven cultures have a disciplined curiosity and rigor to find credible patterns in the data before finalizing their conclusions – which is why everyone emphasizes how important it is to create a test-and-learn culture. Armed with a solid business case, transparency and good processes, data-driven organizations use analytics in combination with human expertise to make better decisions.

Why is this so urgent?

A recent Bloomberg article reported that the workers’ compensation industry posted its first underwriting profit since 2006, which is welcome news. At the same time, the article noted that this is directly related to how insurers have reacted to the current investment environment. In the absence of meaningful investment returns, insurers are keenly focused on bridging the gap by improving underwriting profits and enhancing operational efficiencies: “The reality is, in today’s interest-rate environment, we need to be driving combined ratios under 100,” said Steve Klingel, CEO of the National Council on Compensation Insurance (NCCI).

This isn’t limited to one line of business. As Robert Hartwig, president of the Insurance Information Institute, noted in a recent interview, “You’re not going to see vast swings you did 10 or 15 years ago, where one year it’s up 30% and two years later it’s down 20%”. The reason he gave: “Pricing is basically stable… The industry has gotten just more educated about the risk that they’re pricing.”

Now what?

No one said implementing data analytics in an underwriting environment is a small task or a quick fix. Many companies focus primarily on selecting the right predictive model. In reality, the model itself is just one part of a larger process that touches many parts of the organization.

Data analytics can only be successful if developed and deployed in the right environment. You may find that you have to retool your people so that underwriters don’t feel that data analytics are a threat to their expertise, or actuaries to their tried-and-true pricing models. Never underestimate the importance of the human element in moving to a data-driven culture.

Given the choice between leading a large-scale change management initiative and getting a root canal, you may be picking up the phone to call the dentist right now. It doesn’t have to be that way: Following a thoughtful, straightforward process that involves all the stakeholders early and often goes a long way.

Obesity as Disease: A Profound Change

The obesity rate in the U.S. has doubled in the past 15 years. More than 50% of the population is overweight, with a BMI (body mass index) between 25 and 30, and 30% have a BMI greater than 30 and are considered obese. Less than 20% of the population is at a healthy weight, with a BMI less than 25.

On June 16, 2013, the American Medical Association voted to declare obesity a disease rather than a comorbidity factor, a decision that will affect 78 million adults. The U.S. Department of Health and Human Services said the costs to U.S. businesses related to obesity exceed $13 billion each year. With the pending implementation of ICD (International Classification of Diseases) 10 codes, the reclassification of obesity is is fast becoming a reality and will dramatically affect workers’ compensation and cases related to the American Disability Act and amendments.

Before the AMA’s obesity reclassification, ICD-9 code 278 related to obesity-related medical complications rather than to obesity. The new ICD-10 coding system now identifies obesity as a disease, which needs to be addressed medically. Obesity can now become a secondary claim, and injured workers will be considered obese if they gain weight because of medications, cannot maintain a level of fitness because of a work-related injury or if their BMI exceeds 30. The conditions are all now considered work-related and must be treated as such.

The problem of obesity for employers is not confined to workers’ compensation. The Americans with Disability Act Amendment of 2008 allows for a broader scope of protection for disabilities. The classification of obesity as a disease now places an injured worker in a protected class pursuant to the ADA amendment. In fact, litigation in this area has already started. A federal district court ruled in April 2014 that obesity itself may be a disability and will be allowed to move forward under the ADA (Joseph Whittaker v. America’s Car-Mart, Eastern District of Missouri).

Obesity as an impairment

Severe obesity is a physical impairment. A sales manager of a used car dealership was terminated for requesting accommodation and won $128,000. He was considered disabled, and the essential function of the job was walking, so he was terminated without reasonable accommodation.

The judge ruled that obesity is an accepted disability and allowed him to pursue his claim against his employer. This could have substantial impact for employers as injured workers could more easily argue that their obesity is a permanent condition that impedes their ability to return to work, as opposed to a temporary life choice that can be reversed.

The Equal Employment Opportunities Commission (EEOC) has recently chimed in on obesity. According to the EEOC, severe [or morbid] obesity body weight, of more than 100% over the norm, qualifies as impairment under the ADA without proof of an underlying physiological disorder. In the last year, we have seen an increasing number of EEOC-driven obesity-related lawsuits. Federal district courts support the EEOC’s position that an employee does not have to prove an underlying condition, especially in cases where there is evidence that the employer perceived the employee’s obesity as a disability or otherwise expressed prejudice against the employee for being obese.

Workers’ compensation claims are automatically reported to CMS Medicare with a diagnosis. When the new ICD-10 codes take effect, an obesity diagnosis will be included in the claim and will require co-digital payments, future medical care or continued treatment by Medicare.

There is good news on the horizon. Reporting of a claim only happens if there is a change in condition not primarily for obesity. It is recommended that baseline testing for musculoskeletal conditions be conducted at the time of hiring and on the existing workforce. In the event of a work-related injury, if a second test is conducted that reveals no change in condition, it results in no reportable claim and no obesity issue. In the event of ADA issues, the baseline can serve to determine pre-injury condition or the need for accommodations.

What does this mean to employers?

Obesity is now considered a physical impairment that may affect an employees’ ability to perform their jobs and receive special accommodations pursuant to the ADA.

An increasingly unhealthy workforce will pose many challenges for employers in the next few years. Those that can effectively improve the health and well-being of their employee population will have a significant advantage in reducing work comp claim costs, health and welfare benefits and retaining skilled workers.

Recent studies

In a four-year study conducted by Johns Hopkins with an N value of 7,690, 85% of the injured workers studied were classified as obese. In a Duke University study involving 11,728 participants, researchers revealed that employees with a BMI greater than 40 had 11.65 claims per 100 workers, and the average claim costs were $51,010. Employees with a BMI less than 25 had 5.8 claims per 100 workers, with average claim costs of $7,503. This study found that disability costs associated with obesity are seven times higher than for those with a BMI less than 30.

A National Institute of Health study with 42,000 participants found that work-related injuries for employees with a BMI between 25 and 30 had a 15% increase in injuries, and those with a BMI higher than 30 had an increase in work-related injuries of 48%.

The connection between obesity and on the job injuries is clear and extremely costly for employers. Many employers have struggled with justifying the cost of instituting wellness programs just on the basic ROI calculations. They were limiting the potential return on investment solely to the reduction in health insurance costs rather than including the costs on the workers’ comp side of the equation and the potential for lost business opportunities because of injury rates that do not meet customer performance expectations. Another key point is that many wellness programs do not include a focus on treating chronic disease that may cause workers to be more likely to be injured and prolong the recovery period.

Customer-driven safety expectations

There are many potential customers (governments, military, energy, construction) who require that their service providers, contractors and business partners meet specific safety performance requirements as measured by OSHA statistics (recordable incident rates) and National Council on Compensation Insurance (NCCI) rating (experience modifiers) and, in some cases, a full review by 3rd party organizations such as ISNet World.

Working for the best customers often requires that your company’s safety record be in the top 25th percentile to even qualify to bid. To be a world-class company with a world-class safety record requires an integrated approach to accident and injury prevention.

Challenges of an aging workforce

The Bureau of Labor Statistics projects that the labor force will increase by 12.8 million by 2020. The number of workers between ages 16 and 24 will decline 14%, and the number of workers ages 25 to 54 will increase by only 1.9%. The overall share of the labor force for 25- to 54-year-olds will decline from 68% to 65%. The number of workers 55 and older is projected to grow by 28%, or 5.5 times the rate of growth in the overall labor force.

Employers must recognize the challenge that an aging workforce will bring and begin to prepare their workforce for longer careers. A healthy and physically fit 55-year-old worker is more capable and less likely to be injured than a 35-year-old worker who is considered obese.

Treating chronic disease

Employers who want a healthy work force must recognize and treat chronic disease. Many companies have biometric testing programs (health risk assessments) and track healthcare expenditures through their various providers (brokers and insurance carriers).

The results are quite disappointing. On average, only 39% of employees participate in biometric screenings even when they are provided free of charge. For those employees who do participate and who are identified with high biometric risk (blood pressure, glucose, BMI, cholesterol), fewer than 20% treat or even manage these diseases.

This makes these employees much more susceptible to injury and significantly lengthens the disability period. The resulting financial impact on employers can be devastating.

Conclusion

Best-in-class safety results will require a combined approach to reduce injuries and to accommodate new classes of disability such as obesity. It is important that employers focus on improving the health and well-being of their workforce while creating well-developed job descriptions, identifying the essential functions, assessing physical assessments and designing job demands to fall within the declining capabilities of the American workers. It is important for an employer to only accept claims that arise out of the course and scope of employment. This is especially true with the reclassification of obesity as a disease. Baseline testing will play an essential role in separating work-related injuries from pre-existing conditions in this changing environment.