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Top 5 Things PCI Got Wrong on Work Comp

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

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

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

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

See also: 2016 Outlook for Property-Casualty

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

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

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

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

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

Option Program Success in Delivering Better Outcomes Is the Real Story

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

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

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

Who could be against that?

The Flip Side of Nonsubscription

The proposed workers’ compensation opt-out legislation in South Carolina and Tennessee, coupled with the recent challenge to the Oklahoma opt-out statute’s constitutionality, has spawned many recent articles, publications and commentaries regarding legislation allowing employers to “opt out” of state-governed workers’ compensation insurance programs and become “nonsubscribers.” Most of these articles have attacked the nonsubscriber option as pro-employer and anti-employee.

Interestingly, however, when the Texas Department of Insurance (TDI) last investigated the satisfaction levels of injured workers employed by nonsubscribing companies, those studies showed that employees of nonsubscribers were generally satisfied with their treatment post injury, making nonsubscription a win/win for both employer and employee. Indeed, there are lots of reasons why employees like working for nonsubscribers:

1. Nonsubscribers Provide Enhanced Safety.

Nonsubscribing employers tend to provide safer workplaces overall. Why? Because their claim costs directly correlate to claim frequency and severity. Consequently, improved safety, with the resultant decline in claims and severe injuries, is in nonsubscribers’ best interest.

In her recent comprehensive study of nonsubscription, Stanford Professor Alison Morantz observed this phenomenon. Morantz studied 15 large multistate firms, analyzing and comparing data relating to their nonsubscriber claims in Texas and their workers’ compensation claims in other states. She found “strong evidence” that nonsubscription creates a “real safety effect,” because “[n]onsubscribers are, at least in theory, internalizing all of the costs associated with workplace accidents (including tort liability), which should induce them to invest more in safety-enhancing technologies.” She based this conclusion on the “sizable and statistically significant decline” in the claim frequency of severe, traumatic injuries.

See also: Even More Tips for Building a Workers Compensation Medical Provider “A” Team  

Steve Weatherford, vice president of finance and human resources at Daryl Flood Relocation (a Mayflower Transit agent), explained how safety is an integral part of Daryl Flood’s nonsubscription program: “The key ingredients to a successful non-subscriber program are an effective safety program (prevention); employee acceptance of the benefit of early reporting (early treatment); a quality medical network (effective treatment); and a proactive light duty program (restoration to employment).” He explained that “[t]he investment in these ingredients results in higher employee satisfaction; lower frequency of injuries; lower costs per injury; and a quicker return-to-work rate.” Because of its focus on these key ingredients, and notwithstanding the physically demanding nature of the employees’ work, Daryl Flood has gone more than four years without an employee missing a day of work due to a work-related injury.

2. Nonsubscribers Provide Enhanced Access to Quality Medical Care.

The Texas workers’ compensation system can actually impede an employee’s access to quality medical care. Texas workers’ compensation laws cap the amounts that doctors can charge when treating injured workers receiving workers’ compensation benefits. As a result, many prominent doctors refuse to treat patients under the workers’ compensation system.

Nonsubscribing employers, on the other hand, have the freedom to negotiate fees with medical providers, and they take advantage of this opportunity to enlist the most highly regarded specialists in many fields. “We search for and use credentialed doctors and strive to use only board-certified specialists,” says Jim Dickinson, Kroger’s claim manager, who helped roll out Kroger’s nonsubscription program in 1992. “And since we are not bound by workers’ compensation protocols, we are able to help associates who are in pain by expediting the treatment and testing they need.”

3. Nonsubscribers Provide Enhanced Benefits.

The vast majority of the employees covered by occupational injury benefit plans receive benefits that are more generous than their workers’ compensation counterpart. For example, many nonsubscriber benefit plans provide wage-replacement benefits on the first day of missed work.

Employees whose injuries are processed through the Texas workers’ compensation system, on the other hand, do not begin receiving wage-replacement benefits until the eighth day away from the job. Additionally, nonsubscriber benefit plans typically pay 85% to 100% of lost wages with no weekly caps, whereas an injured worker employed by a subscriber to the Texas workers’ compensation system is only reimbursed 70% to 75% of lost wages, with caps based on the state’s average weekly wage.

United Supermarkets, for example, pays 90% of the injured employee’s wages beginning the first day of missed work, and it does not set a ceiling for the maximum amount of a weekly paycheck. In addition, most nonsubscribers allow their injured workers to make their usual deductions from their paychecks, such as deductions for group-health insurance premiums—an option not available under workers’ compensation.

See also: How Should Workers’ Compensation Evolve?  

Statistically, these differences are significant, because most claims involve minor injuries with little missed work. Workers who suffer minor injuries and are out of work between one day and one week under the state compensation system receive no lost wages, whereas workers employed by nonsubscribers with benefit plans typically start receiving lost-income benefits immediately. Professor Morantz wrote about this benefit to workers in her article: “Some ubiquitous features of private plans—such as first-day coverage of lost earnings and wage replacement rates that are not capped by the [state’s] average weekly wage—are more favorable to injured workers than workers’ compensation.”

4. Both Nonsubscribing Employers and Their Employees Are Satisfied With Their Treatment Following On-the-Job Injuries.

For these and other reasons, “injured workers employed by nonsubscribers are generally satisfied with their post-injury treatment.” Indeed, in 1997, the last time that TDI studied the satisfaction rates of nonsubscribers’ employees, the study “revealed that worker satisfaction with employer treatment, medical coverage and income benefits paid during recovery was relatively high.”

Nonsubscribing employers’ satisfaction levels are likewise high.  In TDI’s 2014 study on nosubscription, the department found higher satisfaction rates for nonsubscribers – 67% overall – than for subscribers – 61% overall.  Historically, researchers have found the gap to be logical: “Differences in satisfaction levels observed between subscribers and nonsubscribers are not surprising since employers who have made a conscious decision to opt out of the WC system may feel a stronger sense of ownership over their alternative occupational benefits program than subscribers do about the statutorily based WC system. Thus, higher overall satisfaction levels, as well as a greater degree of satisfaction with specific aspects of their programs, can be reasonably expected from firms that choose to opt out of the system.”

And while there will always be employees who are dissatisfied or mistreated under any system—whether employed by a subscriber or nonsubscriber to workers’ compensation—many employees sing the praises of nonsubscription. Paul Philley, for example, describes his favorable experience following a workplace injury at Kroger: “They got right on it, and the treatment was excellent,” he said in a telephone interview. Philley, a 36-year-old produce employee with Kroger, suffered a severe cut to his finger when a baler door slammed closed on it. In previous years, he suffered several hernias, which he also treated through Kroger’s nonsubscription plan. “I give Kroger 100 percent A’s,” he said. “They went by the book and took care of me each time.” He confirmed that he never had to pay a penny for his medical care out of his own pocket.

5. The Most Criticized Features of Nonsubscribers’ Plans Have Little Impact in Real Life.

Four of the features of nonsubscriber plans that are most criticized have very little impact on workers as a whole: non-coverage of permanent partial disabilities, capped benefits, lack of chiropractic care and categorical exclusion of some diseases and non-traumatic injuries. Professor Morantz’s study concluded “that even in combination, these four plan features account for relatively little of the cost savings.” As Morantz explained, “The impact of these plan features on total savings looks much smaller than I expected.” These headline-grabbing provisions affect only a very small percentage of injured workers.

6. Nonsubscription Is a Win/Win for Employers and Employees.

While many organizations and lobby groups representing workers’ compensation insurers and plaintiffs’ attorneys spout unsupported criticisms of nonsubscription, the only objectively researched and published data shows that nonsubscription works, both for employers and employees. The ability to opt-out was a key component of the Texas workers’ compensation system as it was initially crafted in 1913, and nonsubscribers’ treatment of their injured workers has only improved since then.

See also: Five Workers’ Compensation Myths  

Most employers—whether subscribers or not—genuinely care about their employees and want to treat them right. Nonsubscription is an alternative way for employers to provide for their employees, and a way to get them better care, faster, so they can return to work sooner. The truth is, nonsubscription works, and it’s a win/win for both employees and responsible nonsubscribing employers.

Taking a New Look at the ‘Grand Bargain’

Workers’ compensation was established more than 100 years ago as a “grand bargain” between employers and labor. Injured workers gave up their right to sue employers in civil court for workplace injuries, making workers’ compensation the “exclusive remedy” for such injuries. In exchange, injured workers received statutory benefits in a no-fault system. Over time, we have seen a number of different challenges to this grand bargain.

Is Exclusive Remedy Exclusive?

The answer to this question is clearly no. Nearly every state has a very narrow statutory exception to exclusive remedy if the injury was caused by an “intentional act” of the employer. Some states have a lower threshold if it is determined that the employer’s actions were “substantially certain” to cause injury. In both of these cases, lawsuits filed by injured workers against their employer rarely succeed, and most suits do not survive past summary judgment.

However, there are many other ways in which the exclusive remedy of workers’ compensation can be circumvented. These include:

  • Statutory Exceptions – New York employers in the building trades are still exposed to civil litigation in addition to workers’ compensation under the Scaffold Law. This allows workers in the construction industry to file suit against their employer if the injury arose from an “elevation-related hazard.” New York is currently the only state that still has such legislation in place, with Illinois repealing its Structural Work Act in 1995.
  • Third-Party-Over Actions – Some states allow civil litigation surrounding a work injury under a third-party-over action. In such cases, the employee sues a third party for contributing to the injury and then the third party brings in the employer on a contributory negligence action. For example, if an accident involves machinery, the machine manufacturer can bring the employer into the suit, alleging that it trained employees inadequately, that the machine was not properly maintained or that it was modified by the employer.
  • Dual Capacity Suits – Dual capacity suits allow the employee to sue the employer as supplier of a product, provider of a service or owner of premises. For example, if a worker is injured using a machine manufactured by the employer, some states allow that injured employee to file suit against the employer based on its negligence as the manufacturer.
  • RICO Suits – Filing claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) is a more recent method to attempt to avoid exclusive remedy protections. This federal law was originally designed to fight organized crime. In Michigan, Colorado and Arizona, the courts allowed injured workers to pursue a RICO complaint against their employer on the grounds that the employer “conspired” to deny medical treatment to injured workers by limiting physician referrals and prescribing practices and exercising undue influence over treating physicians.
  • Constitutional Challenges – Constitutional challenges are the latest avenue for attempting to circumvent exclusive remedy protections. There was much attention given to the Padgett case in Florida, where a judge ruled that the workers’ compensation statutes were unconstitutional because statutory changes that reduced benefits to workers and raised thresholds of compensability had eroded the “grand bargain” to the point that it was no longer valid. This case was reversed on appeal because of a technicality, so the higher courts never ruled on the merits of the argument.

Is No Fault Really No Fault?

Again, the answer is clearly no. Many states allow for a workers’ compensation claim to be disputed if it is proven that the injured worker was intoxicated at the time of the accident. In addition, some states allow for a reduction in benefits if the accident occurred because the worker violated a safety rule, such as not following lock-out/tag-out procedures or not using protective gear.

Unintended Consequences of Statutory Change and Litigation

Courts in Missouri, Illinois and Pennsylvania have ruled that, if a work injury is excluded under the workers’ compensation statutes, the employee can bring a civil suit against the employer. The courts are hesitant to provide no means for an injured worker to pursue compensation, so when statutory language is tightened up and certain conditions are excluded from workers’ compensation coverage it opens the door for potential civil action.

This issues also arises when the workers’ compensation claim is denied because the worker is not in “course and scope” of employment. If the worker falls on the employer’s premises, and the employer denies the claim under workers’ compensation, then the employee can sue under civil liability.

Not All Workers Are Protected

In many states, there are workers who are not required to be covered under workers’ compensation. In 14 states, smaller employers with five employees or fewer do not have to secure coverage. In 17 states, there is no legal requirement for coverage of agricultural workers. Finally, half the states do not require coverage for domestic workers, and five states specifically exclude coverage for these employees.

Opt-Out Legislation

Opt-out legislation, by its very nature, allows for an option to the grand bargain of traditional workers’ compensation. What many do not realize is that workers’ compensation has always been optional in Texas. Both employers and workers can choose to opt out of the workers’ compensation system and, instead, be subject to civil litigation in the event of employee injuries.

Oklahoma now allows employers an “option” to traditional workers’ compensation. Plans must be approved by the state and must provide the same level of benefits as workers’ compensation. Such plans provide employers greater control over choice of medical providers.

Opt-out legislation is currently being considered in Tennessee and South Carolina, and it is likely that similar legislation will be introduced in additional states in the future.

Causation Thresholds

There is significant variation among states in the threshold for a condition to result in a compensable workers’ compensation claim. In Tennessee, the injury must “primarily arise” from work (50% or greater). However, in California and Illinois, if the work is a contributing factor (1% or greater), the employer is responsible for that condition under workers’ compensation. Employers argue that these low causation thresholds undermine the grand bargain by greatly expanding what is considered a workers’ compensation injury.

Conclusion

As workers’ compensation has evolved, there have been many exceptions to the original premise behind the “grand bargain.” The courts have continued to allow exceptions to exclusive remedy and expanded causation standards. Statutory reforms have also resulted in classifications of employees and work conditions that are excluded from workers’ compensation. These trends are expected to continue.

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.

Oklahoma And Beyond: Significant State Workers' Compensation Reforms In 2013

The cost of providing workers’ compensation insurance is one of the top issues for companies of all sizes and across industries. Because it is regulated at the state level, companies need to stay abreast of issues in any state in which they do business. To date in 2013, nine states have seen significant workers’ compensation reform bills signed into law. Highlights from the legislation in each of the nine states follows.

Oklahoma
Oklahoma’s workers’ compensation reform laws have received the most attention lately because of the inclusion of an opt-out provision, known as the Oklahoma Option. This legislation takes effect on February 14, 2014, and applies only to injuries occurring on or after January 01, 2014.

The ability to opt out has been a significant component of the Texas workers’ compensation system for a number of years. Wyoming also has a limited opt-out provision. Approximately one-third of employers in Texas participate in the opt-out, including many large national retailers. The significant cost savings employers saw in Texas was one of the driving forces behind the Oklahoma Option.

The Oklahoma Option’s application form is significantly different from that in Texas. Employers that opt out in Texas cannot simply endorse their excess liability policy to cover Oklahoma. Rather, employers in Oklahoma that choose the option are required to provide a written benefit plan that serves as a replacement for the workers’ compensation coverage. This benefit plan must provide for full replacement of all indemnity benefits offered in the workers’ compensation system. The plan can be self-insured, or coverage can be purchased from a licensed carrier. At this time, carriers are developing policies to provide both first-dollar and excess self-insurance coverage for the benefit plans under the Oklahoma Option.

The key component of the Oklahoma Option for employers is that it gives them full control of the medical treatment through their benefits plan. More than 60% of workers’ compensation costs are medical treatment. With full medical control, employers will be able to ensure that injured workers receive the appropriate medical care from medical providers who follow widely accepted occupational medicine treatment protocols. This will eliminate doctor shopping, which is a significant cost driver in many states. The hope is that full employer medical control will eliminate unnecessary treatment, produce shorter periods of disability, and ultimately improve medical outcomes for the injured workers.

Unlike the Texas opt-out, the Oklahoma Option does not permit employees to pursue a negligence action through the civil courts. Workers’ compensation is usually the exclusive remedy for an injured worker for any work-related injuries. In other words, the employee cannot usually pursue a separate tort action in civil court. In Texas, injured workers for employers who opted-out are free to pursue remedy in the civil courts. With the Oklahoma Option, any litigation must proceed through the normal workers’ compensation administrative processes. This exclusive remedy has a narrow exception for injuries that were intentionally caused by the employer. Attorneys will have to overcome this very high burden of proof in order to pursue a civil complaint for a work injury.

Another difference between the Oklahoma and Texas opt-out scenarios is that the Oklahoma system is backed by a guarantee fund, which provides benefit payments in the event that a carrier or self-insured employer becomes insolvent and is unable to continue paying claims. The Oklahoma Option coverage offers guarantee funds for both self-insured employers and carriers. These are separate from the workers’ compensation guarantee funds.

The Oklahoma reforms also include the switch from a court-based system to an administrative system. Oklahoma was one of the few remaining states where all workers’ compensation disputes were adjudicated in the civil courts. Civil litigation is both very expensive and time-consuming. This change to an administrative system should reduce employer costs associated with litigation and produce more timely decisions, which are key elements of controlling claims costs.

Overall, the changes made in Oklahoma are positively viewed by employers and should improve Oklahoma’s ranking as a top ten state for loss costs.

Delaware
The recently passed reform bill in Delaware was designed to control medical costs and encourage return-to-work efforts.

Medical cost savings will be achieved by:

  • Suspending for two-years the annual inflation increase on medical fees.
  • Lowering the inflation index on hospital fees.
  • Creating new cost-control provisions on pharmaceuticals.
  • Establishing a statute of limitations for appealing utilization review decisions.
  • Expanding the fee schedule to capture items that were previously exempted.

Other changes included more emphasis on return-to-work efforts, which will be considered in calculating the workplace credit safety program.

These changes are expected to lower employer workers’ compensation costs in Delaware.

Florida
The use of physician-dispensed medication has been a significant issue in Florida workers’ compensation. Physicians were charging several times what the same medication would cost from a retail pharmacy, and the costs were not regulated by a fee schedule. SB 662, which was recently signed into law, creates a maximum reimbursement rate for physician-dispensed medication of 112.5% of the average wholesale price, plus an $8 dispensing fee. Although the bill is expected to produce cost savings for employers in Florida, the fee schedule amount for physician-dispensed medications is still significantly higher than that for the same medications at retail pharmacies. There are savings; however, this will continue to be a cost driver in the state.

Another issue impacting workers’ compensation costs in Florida is that the First District Court of Appeals, in two separate rulings, has found sections of the workers’ compensation statutes unconstitutional. Under the Westphal decision (Bradley Westphal v. City of St. Petersburg, No. 1D12-3563, February 2013), the court decided that the 104-week cap on temporary total disability (TTD) benefits was “unfair” and violated the state’s constitutional right to access the court and “receive justice without denial or delay.” Injured workers are currently limited to 260 weeks of TTD benefits, which was the cap under the prior law. There is concern that the arguments used in Westphal could also be used to invalidate the 260-week limit. The Court has agreed to review this decision en banc, so the ruling is not final.

In the Jacobson case (Jacobson v. Southeast Personnel Leasing, Case 1D12-1103, June 5, 2013), the court found unconstitutional a section of the Act that prevented injured workers from hiring an attorney for motions for costs on disputed claims, as this violated their right to due process.

The Jacobson case is very narrow in scope and has limited impact, but the Westphal decision has potential to significantly increase employer costs. With these cases, there is growing concern in Florida that attacks on the constitutionality of the workers’ compensation statutes will continue, further eroding prior reforms that produced significant employer savings.

Despite savings produced via the fee schedule for physician-dispensed medications, if the court upholds the decision in Westphal, the associated costs will outweigh any savings from the recent legislation.

Georgia
Legislation passed in Georgia should have a positive impact on workers’ compensation costs for employers. Effective July 1, 2013, medical benefits for non-catastrophic cases are capped at 400 weeks from the date of accident, whereas previously, injured workers were entitled to lifetime medical benefits for all claims. This change significantly shortens the claims tail for non-catastrophic cases. By eliminating exposure for lifetime medical coverage on all claims, it also reduces the potential exposure on any Medicare Set-Aside, as Medicare’s rights on a workers’ compensation claims are confined to the parameters of the state law.

In order to receive this concession from labor on the medical costs, employers agreed to increase the indemnity rates for temporary partial disability (TPD) and TTD. The indemnity rate increases are as follows:

  • TPD: $334 to $350 for a period not exceeding 350 weeks from the date of injury.
  • TTD: $500 to $525 per week for a period not exceeding 400 weeks from the date of accident.

Indemnity rates in Georgia had not increased since 2007.

Another change involves a requirement that an injured worker make a legitimate effort to return to work when a modified-duty position is offered. The employee must complete a full work shift or eight hours, whichever is longer. If the injured worker feels that he or she is unable to work beyond that, benefits must be reinstated and the burden is on the employer to show the work offered was suitable. If the employee does not complete that full shift, then the burden of proof does not shift back to the employer and the employer can suspend benefits.

The cost savings from capping the medical benefits is expected to slightly outweigh the cost increases associated with the indemnity maximum rate increase. Thus, the net impact to employers should be a slight reduction in workers’ compensation costs.

Indiana
Research indicates that workers’ compensation medical fee schedules lower medical costs. In Indiana, legislation was passed that establishes a hospital fee schedule at 200% of Medicare rates. This is consistent with other states that base their fee schedules on Medicare rates. The bill also capped the price for repackaged drugs and surgical implants. Since repackaged drugs and surgical implants were previously outside the fee schedule, these caps will help to reduce employer costs. The fee schedule takes effect on July 1, 2014.

The legislation also included changes to indemnity benefits:

  • Gradual average weekly wage (AWW) increase of 20% over three years, beginning with a 6% increase on July 1, 2014, and up to 20% over current AWW by July 1, 2016.
  • An increase of 25% in permanent partial impairment or disability (PPI or PPD), from $1,400 per degree from 1 to 10 degrees to $1,750, gradually over three years. Higher PPI ratings, above 10 degrees, increased from 16% to 22% incrementally over the same period.

Indiana had not increased its maximum indemnity benefit for many years, so the general consensus is that the increase was overdue.

Given that medical costs typically account for 60% of the total workers’ compensation expenditure, the decrease in medical costs from these reforms should offset the increase in indemnity benefits. The expectation is that this legislation will produce a small degree of savings for employers.

Minnesota
Minnesota joined most other states in amending its statutes to allow for mental-mental injuries (a psychiatric disorder without a physical injury). The law provides that the employee must be diagnosed with post-traumatic stress disorder (PTSD) by a licensed psychiatrist or psychologist in order to qualify for benefits. However, PTSD is not recognized as a work injury if it results from good faith disciplinary action, layoff, promotion/demotion, transfer, termination, or retirement.

Other changes include a cap on job development benefits and a restructuring of how attorney fees are paid. There is also an increased cost-of-living adjustment (COLA) for permanently disabled workers and an increase on the maximum indemnity rate. Lastly, rulemaking authority is now in place to include narcotic contracts as a factor in determining if long-term opioid or other scheduled medication use is compensated.

The job development benefits and narcotic use in Minnesota are significant cost drivers, so these are positive limitations for employers. However, the increase in indemnity rates, COLA, and coverage of mental-mental claims all add to employer costs. Thus, a slight overall increase in claim costs is expected as the result of the legislation passed in 2013.

Missouri
Missouri’s reforms were focused on addressing the insolvent second injury fund and returning occupational disease claims to the workers’ compensation system.

The Missouri Second Injury Fund has been plagued by problems for several years. It was heavily utilized by injured workers to supplement permanent partial disability awards. The fund became insolvent when prior reforms capped assessments that were supporting it while not reducing the claims that were covered by it. Under these new reforms, which are effective January 01, 2014, PPD claims are excluded from the second injury fund. Access to the fund will be limited to permanent total disability (PTD) claims where the total disability was caused by a combination of a work injury and a pre-existing disability. In addition, employer assessments to cover the funds’ liabilities are increased by no more than 3% of net premiums. These increased assessments expire December 2021.

The new law also indicates that occupational diseases are exclusively covered under the workers’ compensation statutes with some exceptions, which are noted below. The Act also establishes psychological stress of police officers as an occupational disease under workers’ compensation.

Bringing occupational disease claims back under workers’ compensation came at a cost. Trial lawyers in Missouri had significant influence in crafting this legislation. The act defines “occupational diseases due to toxic exposure” and creates an expanded benefit for occupational diseases due to toxic exposure other than mesothelioma — equal to 200% of the state’s average weekly wage for 100 weeks to be paid by the employer. For mesothelioma cases, an additional 300% of the state’s average weekly wage for 212 weeks shall be paid by employers and employer pools that insure mesothelioma liability. These expanded benefits are in addition to any other traditional workers’ compensation benefits that are paid. Also, these enhanced benefits are a guaranteed payout to the injured worker or his or her estate. It is very unusual to see guaranteed payout of benefits in workers’ compensation, so there is potential that this will lead to an increase in toxic exposure claims being filed under workers’ compensation.

In addition, employers will no longer have subrogation rights on toxic exposure cases. This is a potentially significant issue. Often, attorneys do not bother filing for workers’ compensation on such cases, as their focus is on larger awards available on the tort side. Attorneys know any workers’ compensation benefits have to be repaid under subrogation. There is concern from some employers and defense attorneys that eliminating subrogation rights will actually encourage filing more toxic exposure claims under workers’ compensation.

The establishment of a “Meso Fund” is also creating confusion. Employers must opt into this fund, and it is supported by additional assessments against the employers in an amount needed to cover the liabilities. If an employer does not opt into the Meso Fund, their liability for a mesothelioma claim is not subject to the workers’ compensation exclusive remedy and action may be pursued in the civil courts. Most employers do not have exposure to mesothelioma claims, so it is expected that the only employers who will join the Meso Fund are those who frequently see such claims and are looking to spread their risk to others.

Between the increased assessments, expanded benefits for toxic exposure, and the loss of subrogation on toxic exposure cases, it is expected that this legislation will increase costs for employers in Missouri.

New York
Governor Cuomo has indicated that the workers’ compensation reform legislation he recently signed into law will reduce employer costs by about $800 million annually. These savings are derived primarily by streamlining the assessment collection process and eliminating the 25-a fund and its associated assessments. New York’s workers’ compensation assessments are the highest in the nation, so employers welcome any relief in this area.

Many employers are questioning whether this legislation provides any real savings. Because the streamlining process is not known, whether or not assessments will be significantly lowered is still unclear.

The 25-a fund covered claims that were reopened for future medical treatment. Eliminating this fund does not save employers money. As occurred when the 15-8 fund (second injury fund) was eliminated under the last reforms, the claims previously paid by these funds will now be paid by employers directly, so there is no net savings realized. In addition, running off the 15-8 and 25-a funds will take several years, so the assessments — in particular those for the 15-8 — will continue. Because of the continued assessments, shutting down these funds will actually increase employer costs in the short-term. The long- term impact should be cost neutral, with the employers paying the claim costs directly, instead of through assessments.

Finally, the minimum weekly indemnity benefit was increased from $100 to $150. This will have a negative impact on employers who hire part-time workers earning near the minimum wage.

Until the impact of the streamlined assessments is known, it is impossible to quantify the overall impact this bill will have on employers. However, after the legislation passed, the New York Insurance Rating Board recommended a double-digit rate increase for the second consecutive year, indicating that they are skeptical the law will produce significant savings.

Tennessee
Tennessee also moved its workers’ compensation dispute resolution process from a court-based system to an administrative system, leaving Alabama as the only state that still uses the trial courts for all such litigation. As mentioned in regard to Oklahoma, this should reduce employer costs associated with litigation and provide more timely resolution of disputes.

Tennessee also amended its law to provide for strict statutory construction of the Workers’ Compensation Act. The law previously required that close disputes be adjudicated in favor of the injured worker. The switch means that the administrative courts no longer can favor either party and must strictly follow the statutes. In theory, this should lead to a much narrower interpretation of the statutes and reduce the courts’ expansion of what is covered under workers’ compensation. However, strict construction can work against the employer if the language in the statutes is vague. For example, several years ago Missouri switched to strict construction, which resulted in some unintended consequences. The courts in Missouri issued many decisions that were unfavorable to employers because the statutes in Missouri did not strictly indicate that occupational disease was subject to the exclusive remedy of workers’ compensation or that permanent total disability benefits stopped at the death of the injured workers.

Calculation of permanent partial disability (PPD) has also been changed in the new Tennessee law. The multipliers for not returning an injured worker to employment have been eliminated in favor of a system based primarily on the impairment rating. Overall, PPD is expected to decrease under the new system. Until cases are adjudicated under the new system, however, this remains to be seen.

Tennessee also now requires a higher burden of proof on causation. Employees must prove that the workplace is the primary cause of any injury, meaning that the employment contributed more than 50% percent in causing the injury. This is expected to significantly reduce claims where an employee’s pre-existing conditions are the main cause of the work injury.

Finally, a medical advisory committee was created to develop treatment guidelines for common workers’ compensation injuries. In other states, these treatment guidelines have helped to lower medical costs. Until these guidelines are actually in place, the exact impact is unknown.

The workers’ compensation legislation in Tennessee was designed to make the state more attractive for businesses. Employers should see lower costs as the result of the reforms.

Pending Legislation
At the time of this article, some state legislatures were still in session with pending workers’ compensation bills. It is important for companies to stay informed on state-level changes to workers’ compensation laws as they can have significant impact on costs and approaches to managing this key risk area.

Author’s Note: I would like to thank members of the National Workers’ Compensation Defense Network (NWCDN) for their assistance with this article. They are a tremendous resource in my efforts to monitor workers’ compensation developments nationwide.