Tag Archives: permanent total disability

5 Complex Issues Facing Regulators

The 2014 International Association of Industrial Accident Boards and Commissioners (IAIABC) Annual Conference in Austin offered a forum for regulators from around the country to discuss common issues and potential solutions. At this year’s conference, held Sept. 29  to Oct. 2, regulators highlighted a variety of complex issues that they are currently facing. Top issues include:

1. Hospital-Fee Schedules

In states that do not have hospital-fee schedules, the standard for payment is usually “reasonable and customary” charges. The question becomes, how do you determine what is reasonable? Healthcare providers push for billed charges to be the standard, but payers feel that this is an unfair standard because the charges are significantly higher than what providers ultimately accept as payment. Payers are pushing for paid charges to be the standard, but providers argue that preferred provider organization (PPO) contracts heavily influence average charges and that those contracts are based on volume. Providers do not believe that those without contracts should get the benefit of that volume discount.

2. Benefits for Illegal Aliens

Nearly all states extend benefits in some form to illegal alien workers. In some states, benefits are limited to medical benefits, while other states limit benefits to medical and total disability. In most states, there are no limitations to what benefits these workers can receive.

The concern is that some states are awarding these injured workers permanent total disability benefits because their status as illegal aliens means they cannot be put through vocational rehabilitation and returned to work. Attorneys argue that total disability benefits should continue when a light-duty release is obtained because that person cannot legally return to work. States are trying to find a balance that protects the illegal alien workers but doesn’t award them additional benefits simply because of their inability to legally work in the U.S.

3. Ride-Sharing Services

The explosion of ride-sharing services such as Uber is causing concern with regulators around the nation. The big concern from a workers’ compensation standpoint is whether these drivers should be classified as employees of Uber or whether they are independent contractors. Owners of taxi companies argue that allowing these drivers to be classified as independent contractors creates an unfair competitive advantage. States are challenged with whether they can classify these drivers by statute or whether this should be done by courts interpreting current statutes.

4. Treatment Guidelines

Several states, including Washington, Texas and Colorado, have pushed out treatment guidelines for issues such as opioids and lower back injuries. These guidelines have resulted in significantly lower medical costs on claims. The medical community tends to resist implementation of such guidelines as they feel this impedes their ability to render appropriate medical care based on the specifics of the patient. Those that argue for treatment guidelines point to significant research on the effectiveness of certain treatment methods and the dangers associated with opioids above certain dosage levels.

5. Large-Deductible Policies

Regulators feel that there is confusion on the differences between large-deductible policies and self-insurance, with many employers assuming that the two are interchangeable. In some states, courts have ruled that employers under a large-deductible policy cannot have influence over the claims-handling process, so they cannot access items like adjuster files.

The carrier is ultimately responsible for payment of the claims and compliance with the statutes. If the carrier is unable to collect the deductible from the employer, the regulators do not have jurisdiction over the issue. The deductible agreement is outside the parameters of the insurance policy.

Can You Trust the Aflac Duck?

I'm always a bit skeptical when companies report the results of self-serving surveys, so let's look at what Aflac — you know, the duck-spokesman company — said about a survey that indicated that offering disability insurance coverage to workers could drive workers' compensation claims down considerably. The survey found:

  • 42% of all companies providing voluntary accident and disability insurance report declines in their workers’ comp claims—some of as much as 50%.
  • Roughly 17% of employers offering voluntary accident insurance and 15% of those offering disability saw claims declines of 25% to 49%. The declines were most frequent for large employers, 55% of whom saw workers’ compensation claims drop. Of small- and medium-sized companies, 34% reported the same results.

Is this really true? Can simply purchasing disability insurance really lower the number of workers' compensation claims? Forgive me for immediately thinking that this sounds a bit like the marketing strategy of snake oil salesmen: “Buy one bottle of this magic elixir, and it cures everything from rheumatism to scarlet fever.”

I can think of three reasons why “purchasing disability insurance = lower workers' comp costs” may not be a valid equation.

1. Lower claims may not amount to lower costs.

In the exposure mod rating game, there is no question that lowering the number of claims can reduce the E-Mod and result in lower premiums. However, just because the claims are lower does not automatically mean that the costs are lower.

For example, if the claims reduced by the purchase of disability insurance were small medical-only claims or small lost-time claims, this would reduce the actual number of claims but may not have much of an effect on the E-Mod of a large company that also has more serious injuries. Sure, the number of claims may have gone down, but if Acme Co.’s comp costs stayed the same because of the presence of larger or more serious claims, does that really amount to a substantive benefit?

2. Disability insurance cost may exceed any savings on workers' comp.

What this survey doesn't tell us is how much companies had to spend on disability insurance coverage to realize the savings in workers' comp costs. In other words, did Acme Co. have to spend an additional $100,000 for the disability insurance coverage to save $40,000 in workers' comp costs? If so, that doesn't seem like much of a bargain – – spending $100,000 to save $40,000 (unless we use U.S. federal government math. . . . )

The survey didn’t give us this information probably because the costs to purchase disability insurance coverage would be different for every company surveyed, as would the savings (if any) from the alleged reduction in workers' compensation claims. Nevertheless, I don’t see how we can determine the validity of the “purchasing disability insurance = lower workers comp costs” equation unless we know the ratio of dollars spent on disability insurance vs. the dollars saved in workers comp costs.

3. Why would injured workers leave money on the table?

Let’s assume that Joe Sixpack is injured on the job. If his employer, Acme Co., has both disability insurance and workers' comp coverage, Mr. Sixpack now has a choice of how he seeks payment for medical care and payment of lost wages. The implied argument from the survey is that if Mr. Sixpack has the choice between the two, he will choose disability insurance over workers' comp, thereby reducing the number of comp claims for Acme Co.

But wait…does disability insurance pay for permanent partial disability benefits? Does disability insurance pay for permanent total disability? Does disability insurance pay benefits longer than the term specified in the policy?

Obviously, the answer to these questions could vary. However, in most states, workers' compensation coverage would pay an injured worker a lot more money than the type of disability coverage refererred to in the survey. I’m not attempting to argue that injured workers should choose workers' comp over disability insurance — but I am pointing out that claimants will typically choose whichever type of benefit will pay them the most money. If that turns out to be workers' comp, then it is doubtful that claimants would be so magnanimous as to choose to file a claim through disability insurance.

Finally, the state where Mr. Sixpack lives may allow him to file a comp claim after he gets benefits through his disability insurance coverage. The presence of disability insurance wouldn’t even amount to a reduction in claims if Mr. Sixpack pursues both avenues.

Bottom line: If you are considering the purchase of disability insurance coverage because it may decrease your workers' comp costs, make sure the math works. Ducks are cute, but I don’t trust their math skills.

Settlement of High-Exposure Workers' Comp Claims: Part One

In nearly every workers' compensation program, cases that are referred to as “legacy files,” “dog files” and a myriad of other names (some of which are not appropriate for print) represent high-exposure claims that drive costs. Identifying and resolving these cases early can reduce exposure and overall costs.

The first part of this three-part series will look at what can trigger those important cases. 


Generally speaking, a few cases represent the vast majority of the cost of a workers’ compensation program. Many are driven by the medical treatment necessary to cure or relieve the effects of the injury. While the indemnity aspect (permanent partial and permanent total disability) can be important, typically it is much easier to quantify these benefits than it is to determine the medical costs.

The high-exposure claims fall into two categories: acute and chronic.

Some examples of acute cases are quadriplegics, paraplegics, severe burns, amputations and head traumas. These injuries are severe and occur immediately as a result of the initial injury. In most instances, there is a significant initial cost, and the continuing care is substantial.

Chronic catastrophic cases, on the other hand, are much more difficult to identify. They typically start off in benign fashion (lumbar strain, knee strain, etc.) and deteriorate into multiple surgeries, lengthy periods of lost time and permanent disability. Chronic cases typically develop about five years after the injury.

A variety of metrics can be used to identify these cases and bring them to the forefront of a settlement initiative. 


A case review can reveal numerous medical conditions that affect potential future exposure, including hypertension, obesity, diabetes, nicotine usage and excessive alcohol consumption. In many instances, these conditions are considered non-industrial and are not identified as cost drivers for the workers’ compensation claim. They are, nonetheless, extremely important in the healing process.

For example, the failure rate of spinal fusions is 20% to 30% in cigarette smokers, nearly double that in non-smokers. The failure of a spinal fusion typically results in one or more additional procedures, including: 1) a repeat fusion; 2) trial/implantation of a spinal cord stimulator; or 3) trial/implantation of an intrathecal pump (commonly referred to as a morphine pump). The costs associated with a failed fusion are payable by the claim, significantly increasing its duration and the cost. 

Similarly, high glucose levels in diabetics can cause poor circulation, diabetic neuropathy and deficiencies in the immune system–all factors in recovering from injuries and surgeries. When an injured worker needs lower extremity surgery (foot, ankle, knee, etc.) and his diabetes is not well-controlled, significant medical problems can develop, including delayed recovery, infections and, in extreme cases, amputation. Again, whether or not the diabetes pre-dated the industrial injury, it can drive medical, indemnity and expense costs. Further, in some jurisdictions, a defendant may become liable for treatment of the diabetic condition if there is evidence that the condition was exacerbated or “lit up” as a result of the industrial injury.

These are just two examples of many nonindustrial co-morbid conditions that can have a significant impact on the cost and duration of a claim.

Life Expectancy and Inflation

In identifying cases that may become high-exposure claims, it is critical to determine the life expectancy of the injured worker. According to the Department of Labor, the median age of the workforce today is 42 years. Based on figures from the National Center for Health Statistics, that would result in a remaining life expectancy of 38 years, on average between men and women. So, it could be necessary to provide medical benefits for an extended period.

The rate of medical inflation is typically 8% a year, so the cost of medical care for an individual will double approximately every eight years.  We refer to this as The Rule of 8.  If an individual is consuming $5,000 a year in treatment today, a doubling every eight years would mean the medical cost would exceed $80,000 annually as he approaches the end of life (see Chart I below). The figures do not consider any deterioration in the medical condition.


Prescription and consumption of medications is escalating. In severe cases, the individual becomes dependent, and the physician is left with few other treatment options. We see instances where medications are prescribed, then additional prescriptions are viewed as necessary to counteract side effects.

New medications are approved by the FDA on a regular basis and are often prescribed in workers’ compensation claims.  More and more, a physician will prescribe an “off label” medication (one that has been approved by the FDA for a specific condition or purpose not consistent with the diagnosis).  Because of patents, there are no generics, and the medications can be costly. An example is Actiq.  This medication was approved by the FDA for the treatment of pain in Stage IV cancer patients.  But, in recent years, physicians have prescribed Actiq for the treatment of chronic spine pain.  The medication can cost upward of $4,000 to $6,000 a month. 

Addition of Body Parts

We all remember the old “Dem Bones” song: “The knee bone’s connected to the thighbone, the thighbone’s connected to the …”  Well, nothing could be more accurate in the world of workers’ compensation.  In catastrophic cases, additional body parts are almost universally alleged as part of the industrial injury. A cervical injury expands into the upper extremities. A knee injury expands to the back and ankle because of an altered gait.  Medications prescribed for chronic pain cause internal complaints.

Identification Process

These triggers, and others, can make a case spiral into a high-exposure claim.  Part II of this series will discuss, in detail, approaches that can be used to assess these types of cases and focus on strategies to mitigate the exposure and move the cases toward resolution.