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Natural Disasters and Risk Management

For many people, their first thought about natural disasters is the devastating property damage that is extremely visible and highlighted by the media. However, the impact of natural disasters goes far beyond property damage and includes the impact to your workforce, your supply chain and the operations of your business.

During a recent Out Front Ideas webinar, we were fortunate to get the perspectives of leaders from three different segments of our industry on the impact of natural disasters on risk management. Our guests included:

  • Tom Best, deputy general counsel for Home Depot
  • Ryan Brannan, commissioner of workers’ compensation for the Texas Department of Insurance
  • John Hinz, vice president of Vericlaim

Types of Disasters

There are two basic types of natural disasters – those with warning and those without. With hurricanes and flooding, you typically have some degree of warning that allows you to initiate disaster response protocols and to prepare for the disaster. However, with events such as tornados, earthquakes and other sudden events, there is no warning and no opportunity for advance preparation to minimize the impact and maximize the response. Both types of disasters benefit from developing a disaster response plan in advance.

Workplace Injuries

One of the first employer concerns has to be preventing and responding to employee injuries when a disaster occurs. At Home Depot, they work with vendors on a daily basis to identify any potential weather that could affect their stores. When there is a potential event, they pull together their response team, led by a disaster captain. Their response team has functional members of all their critical business areas, including human resources, legal, supply chain and business operations. These teams meet every year before the start of hurricane season to make sure everyone understands their role and the disaster response protocols. They also connect with state, local and federal authorities to coordinate response efforts. Because Home Depot has a very important community role in disaster preparedness and response, they keep stores open as long as possible and reopen them as soon as possible.

From a workers’ compensation claim standpoint, there are many concerns. Employees can be injured during the disaster itself. There is also significant potential for injuries sustained by first responders and the National Guard during the response and recovery. Texas deployed 14,000 National Guard troops in response to Hurricane Harvey, and those troops are all considered employees of the state of Texas when deployed. Traumatic physical injuries are not the only concerns. There are also occupational disease concerns because of the toxic chemicals that were in the floodwaters of Houston. Furthermore, there are concerns about post-traumatic stress. Because of the occupational disease exposure, there could be a very long claims tail from this natural disaster.

Workforce Disruption

Home Depot is a major employer, but they are also an essential element in any disaster response because people depend on them for building materials and other supplies. Their command center is focused on taking care of both their employees and the community as a whole.

The Texas Workers’ Compensation Commission closed five field offices at various times in response to Hurricane Harvey. Their primary focus was the safety of their staff, but they were also concerned about being able to conduct the business of the commission.

See also: 6 Reasons We Aren’t Prepared for Disasters  

It is important to give your employees time off during a natural disaster to take care of their families and personal needs. Employers often bring in workers from other locations to assist in the affected areas so that the employees living in the area can tend to their personal needs first, then come back to work when able to do so. This allows the business to continue serving the community while also making sure that employees are settled.

Workers’ Compensation System Impact

Keeping the workers’ compensation system running during a natural disaster is important and challenging. In Texas, the governor suspended certain regulations and extended or tolled deadlines in affected areas to ensure that workers were receiving timely care and benefits and that carriers were focused on benefit delivery instead of bureaucratic issues. Social media was very useful in keeping people updated on when field offices were open and providing other important information to all stakeholders.

Healthcare Impact

One thing people do not often think about in natural disasters is the impact on the healthcare delivery system. The healthcare delivery system is disrupted in many ways:

  • Technology: With electronic medical records and a wide variety of equipment powered by electricity, a prolonged period without power can make delivery of care very challenging.
  • Continuity of care: Patients are often forced to treat at facilities outside their areas during natural disasters. Facilities need to not only be able to handle the influx of patients, but to deal with the potential HIPAA considerations.
  • Supply chain: One impact of the hurricane that hit Puerto Rico was a significant disruption to the pharmaceutical industry, which accounts for more than 70% of Puerto Rico’s exports. There was a nationwide shortage of saline IV bags after the hurricanes, for instance, because most of these were manufactured in Puerto Rico, and those factories were shut down for a time.
  • Life and death issues for patients: During Hurricane Katrina, healthcare workers and patients in New Orleans were trapped for many days without power. Providers had to make decisions around which patients to evacuate first and which patients were in such bad shape that they could not be saved.
  • Litigation costs: There is always a big spike in litigation against healthcare facilities following a natural disaster because of care disruption and other challenges.

Supply Chain

Supply chain is important to most businesses, and a natural disaster can significantly disrupt the normal supply chains. This was especially challenging on an island like Puerto Rico. Getting the supplies to the island was only the first step. Supplies sat for days in the ports because there were no dock workers to unload them and no trucks to deliver them. There are many lessons to be learned about disaster responses to islands after the events of 2017.

On the mainland, supplies can be staged out of harm’s way in advance of a hurricane so that the trucks can start rolling in once the area is safe. Additional products are purchased in advance so there are ample supplies available. Home Depot works with local, state and federal authorities to coordinate the distribution of disaster relief supplies.

Disaster Preparation

Mitigating the risks and challenges from disasters takes extensive planning and practice. Every location and each facility is different and has varying needs. But as John Hinz explained, planning for emergencies can be the difference between staying in business and losing everything. There are several essential elements that should be included in any emergency preparedness plan.

  • Focus on prevention: If there is any way to prevent a disaster from happening, that is your best defense. The first step in the process is to assess your risk and the potential impact to see how you can be more effective in disaster planning. Once you know the type of disasters for which you are most at risk, take steps to minimize potential damage to your facility and harm to your employees. Think of the actions you might need to take and what you would need in the event of a fire, flood, severe storm or other disaster.
  • Evacuation plan: Every facility should have primary and secondary routes and exits that are well-lit, marked and easily accessible. There should be an outside area designated as a meeting place for employees to gather once they are out of the building. Staff members that may require assistance during an evacuation due to physical limitations should be noted in the plan.
  • Communication: In addition to emergency contact information for local police, fire and ambulance numbers, you should have a contact list that also includes information for your customers, suppliers and distributors. This list should be updated continually, and copies kept both in your files and in offsite locations so you will be able to access them regardless of the situation. You may want to preset conference call numbers in case that is needed. Be sure you have a way to contact key players in and outside the organization.
  • Protect vital company information and critical data and programs that are imperative to keep your operation running. Make sure these things are backed up and that the backup is kept in a location separate from the primary facility.
  • Understand your insurance coverage: Review your insurance policies with your agent or broker so you know your deductibles and how they are applied to your coverages. You should know the limits and nature of your insurance, including coverage specifics. You may want to make changes to some policies, as all coverages are subject to limits and exclusions.
  • Keep insurance information handy: The names and numbers of your insurance representatives should be kept in a safe, accessible place, as this will expedite the claims process when the time comes.
  • Plan for contingencies: Despite your best efforts, your preparation may not be enough. Have an offsite location or allow personnel to work from home, if necessary, to keep the business running.

See also: Cognitive Biases and Risk Management  

Final Thoughts

There is no foolproof plan that will protect your organization from every disastrous situation, but you can be well prepared for most emergencies. If your company does not yet have such a plan, you can work with carriers or agents and brokers to begin the process. There are also a number of consultants that specialize in this area.

After developing a disaster preparedness plan, you need to continually review and update it to make sure that it is current and that everyone understands his or her role if there is a disaster.

You can listen to the archived Out Front Ideas with Kimberly and Mark webinar on this topic here.

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.


Debunking ‘Opt-Out’ Myths (Part 6)

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

Transparency in Workers’ Compensation

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

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

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

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

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

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

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

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

Transparency in Options to Workers’ Compensation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Accepting the Call for Option Program Improvements and More Transparency 

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

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

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

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

Laying the Foundation for Drug Formularies

When Texas announced an 80% drop in the cost of “N” drugs prescribed for new injuries, workers’ compensation stakeholders took notice. (Medications designated as “N” in the Official Disability Guidelines are not appropriate for first-line therapy.)

Since that announcement, the implementation of a closed formulary has placed near the top of the list on several state legislative agendas. While the results being reported out of Texas are still fairly recent, the concept of a closed formulary is not a new idea in that state. Although changes in Texas’ work comp medical cost trends appear sudden, the process for achieving these was anything but.

When HB 7 was passed in 2005, it created the Division of Workers’ Compensation (DWC) within the Texas Department of Insurance and, among other things, authorized “evidence-based, scientifically valid and outcome-focused” medical treatment guidelines and a closed formulary for prescription medications. These steps, along with the existing preauthorization and dispute-resolution processes, provided the solid regulatory infrastructure needed to implement a successful closed formulary.

The Texas Closed Formulary (TCF) requires preauthorization for medications identified as “N” drugs in the current edition of the Work Loss Data Institute’s Official Disability Guidelines (ODG). These guidelines are updated on a monthly basis to encompass new medications and new research surrounding current medications. The TCF excludes not only “N” drugs but also any compound medication that contains an “N” drug, as well as experimental drugs that are not yet broadly accepted as the prevailing standard of care.

Naturally, implementing these requirements would mean a substantial change in prescribing habits. (That was the point.) The problem was that immediate and strict implementation could mean that injured workers were suddenly denied previously prescribed medications without allowing proper time for weaning. To counter this problem, the DWC created a “legacy period” during which older claims would not yet be subject to the closed formulary, even while providers had to comply with formulary requirements when treating newly injured patients. This approach allowed providers to adapt to the new preauthorization requirements and adjust their treating habits over time in existing claims. At the same time, it ensured formulary compliance from the outset in new claims.

After the conclusion of the two-year legacy period, all claims became subject to the TCF. In effect, this legacy period was a compromise that allowed Texas to begin implementing the TCF in all of its claims without hurting patients already on long-term prescription therapy.

The first (and, to date, only) state to attempt to replicate the Texas model was Oklahoma. Oklahoma followed the Texas model closely and, in some places, added improvements. For example, while the TCF excludes all compound medications containing an “N” drug, Oklahoma’s closed formulary excludes all compound drugs, regardless of ingredients.

Unfortunately, there are also some drawbacks – the main one being limited application. Because the Oklahoma Closed Formulary is contained within the rules for Oklahoma’s new Workers’ Compensation Commission, it applies only to those cases within the commission’s jurisdiction. The commission has jurisdiction over all claims with a date of injury from Feb. 1, 2014, on. Older claims are handled by the Workers’ Compensation Court of Existing Claims, which has no closed formulary provision. This means that a doctor treating a worker who was injured on Jan. 31, 2014, and another who was injured on Feb. 1, 2014, will only have to abide by evidence-based treatment guidelines for the second worker.

While Oklahoma has adopted medical treatment guidelines and taken steps to require preauthorization, these requirements are relatively new within the Oklahoma workers’ compensation system. As a result, providers, patients and payers are still adjusting to the new system, and there has been a fair amount of confusion.

Implementing a successful closed formulary does not happen overnight. Texas started the process 10 years ago and has been consistently working to ensure that its reforms were successful. After taking the time to establish the necessary regulatory infrastructure, adopt treatment guidelines and create a logical solution to ensure a unified standard of care issue across all claims, the state is finally seeing clinical and economic benefits.

As Arkansas, California, North Carolina, Tennessee and other states start thinking about replicating the results of Texas by implementing their own closed drug formularies, they would do well to have conversations about these principles first.

This article was originally posted at: WorkCompWire.