Tag Archives: WorkCompCentral

How the Feds Want to Change Work Comp

The Department of Labor has issued a stinging report that, in effect, calls for a new federal commission to review how the state-based workers’ compensation system fails. The department throws down the gauntlet, challenging defenders of the current system to show how state oversight has not deteriorated in the past 25 years in the ways that matter to it —mainly, preventing financial distress to injured workers.

The report’s title, “Does the Workers’ Compensation System Fulfill its Obligations to Injured Workers?”, signals that the department is interested only in increasing worker benefits. It doesn’t want to take over managing the system.

The body of the 43-page report barely mentions employers and insurers. The department portrays itself as a vital stakeholder, in two ways. First, it cites a team of researchers with 70 years’ experience in workers’ comp who estimated that Social Security Disability Insurance spends $23 billion annually for benefits to beneficiaries injured at work. The SSDI enrollment rate for injured workers is double that of workers not disabled by work.

See also: Time to Focus on Injured Workers

Second, not large in the text but strikingly so in the press conference, speakers suggested that the nation’s entire economic safety net is out of kilter because of poor performance of the only part of the safety net run by the states.

There should be no doubt that ProPublica’s series of articles, which commenced in March 2015 with its initial broadside, “The Demolition of Workers’ Comp,” makes it easier for DOL to pitch its views. But DOL doesn’t have much problem finding evidence, some of which is sound, some speculative and some questionable.

The report’s power of persuasion is greatly enhanced by the fact that neither states nor private sector participants in workers’ comp seriously attempt to demonstrate that injured workers fare well, or even just no worse than in the past. The industry does not try to demonstrate that its immense investment in doing business, such as medical management, improves the lot of these workers.

The executive summary says, “Working people are at great risk of falling into poverty as a result of workplace injuries and the failure of state workers’ compensation systems to provide them with adequate benefits.”

The force of this sentence warns that if state regulators and private parties want to respond, it will take quite an effort. The risk of financial distress is rarely addressed, as WorkCompCentral did in The Uncompensated Worker report of January 2016.

States need to consider the extent to which the state system is responsible, such as by barring or erecting hurdles to claims for disease and post-traumatic stress disorder. Certain workers’ compensation benefits, such as for atomic weapons workers, have already been federalized because of failed efforts deliver benefits. (Some financial distress is beyond the scope of a workers’ compensation system, such as lower incomes years after a worker sustains a temporary medical-only claim.)

See also: States of Confusion: Workers Comp Extraterritorial Issues 

DOL’s report argues extensively that benefits have worsened since the 1980s. That’s when state reaction to 1972’s so-called Burton Commission (named after its chair, John F. Burton Jr.) began to falter. States made improvements primarily out of fear of federal take-over. Since, then, according to the report, it’s been only downhill. The report even questions how evidence-based medicine guidelines have helped workers.

This worsening of benefits is a complex argument, arising from Burton himself, still in the game. For some 40 years, frequency of work injuries (the number per 100 workers) has steadily declined. This seems a spectacular gain for workers and employers.  Indemnity benefits per $100 payroll also declined by a lot. In 2010, Burton asserted that benefit payments fell far more because of restricting access to benefits than from fewer injuries.

Much in the report can be picked apart by informed critics. Does anyone want to do it? The report does not end with a crisp list of action items to critique, other than a bland one for more research. But the obvious aim is another federal commission. Those who want to drown this surfacing proposal might consider what allies they have in Washington. Will either of the presidential candidates be opposed to a commission? Would congressional Republicans want to come to the defense of a state system not ready for this battle?

The Department of Labor and others in Washington want, it appears, to federalize enough to increase benefits but not to be in charge of every wheel spinning every weekday at 9 a.m. To achieve change, one has to propose something that most stakeholders will see as better or no worse. And you first have to destroy the reputation of those guarding the status quo. That’s the 50 states, and that’s the goal of this report.

This article first appeared at WorkCompCentral.

The REAL Objection to Opt Out

I have never really understood why the Property Casualty Insurers Association of America has been so vehemently against opt out.

While it seems that opt out returned to the back burner for this year with constitutional defeats in Oklahoma and political stalemate in other states, PCI has reignited the debate with an inflammatory paper.

The basic arguments, which PCI supports with some data, is that opt out results in costs shifting to other systems and that a lack of standards and transparency is detrimental to consumers (i.e. injured workers).

PCI also argues that opt out is all about saving employers money to the detriment of consumers by denying more claims earlier and paying less with capitations and restrictions not found in traditional comp.

I get that alternative work injury systems must meet certain standards and need to be more transparent to consumers — to me, that’s a no-brainer.

But the objections that PCI raises are exactly the same complaints made against traditional workers’ comp: inadequate benefits, unnecessary delays, cost shifting, etc.

See also: Debunking ‘Opt-Out’ Myths (Part 6)  

Each statistic cited by PCI against opt out can be asserted against traditional workers’ comp — just use another study or data source.

For instance, just a couple of years ago, Paul Leigh of University of California at Davis and lead author of the study, Workers’ Compensation Benefits and Shifting Costs for Occupational Injury and Illness, told WorkCompCentral, “We’re all paying higher Medicare and income taxes to help cover [the costs not paid by workers’ compensation].”

That study, published in the April 2012 edition of the Journal of Occupational and Environmental Medicine, found that almost 80% of workers’ compensation costs are being covered outside of workers’ compensation claims systems. That amounts to roughly $198 billion of the estimated $250 billion in annual costs for work-related injuries and illnesses in 2007. Just $51.7 billion, or 21%, of those costs were covered by workers’ compensation, the study said.

Of the $250 billion price tag for work-related injury costs, the Leigh study found $67.09 billion of that came from medical care costs, while $182.54 billion was related to lost productivity.

In terms of the medical costs, $29.86 billion was paid by workers’ compensation, $14.22 billion was picked up by other health insurance, $10.38 billion was covered by the injured workers and their families, $7.16 billion was picked up by Medicare and $5.47 billion was covered by Medicaid.

The study drew criticism from the workers’ comp crowd, which defended its practices, challenged the data and anecdotally attempted to counter argue, with limited success.

If one digs deep enough in the PCI study, I’m sure one could likewise find fault with the data and the reporting on cost shifting — because the truth is that absolutely no one has a fix on that topic.

My good friend Trey Gillespie, PCI assistant vice president of workers’ compensation, told WorkCompCentral that “the fundamental tenets of workers’ compensation [are] protecting injured workers and their families and protecting taxpayers. The general consensus is that the way programs should work is to protect injured workers and taxpayers and avoid cost-shifting.”

Of course! All work injury protection systems should do that.

But they don’t.

See also: What Schrodinger Says on Opt-Out

That’s what the ProPublica and Reveal series of critical articles about workers’ compensation programs across the country tell us, both anecdotally and statistically: Injured workers aren’t protected, costs are shifted onto other programs, and taxpayers are paying an unfair portion of what workers’ comp should be paying.

Indeed, in October, 10 federal lawmakers asked the U.S. Department of Labor for greater oversight of the state-run workers’ compensation system, to counteract “a pattern of detrimental changes to state workers’ compensation laws and the resulting cost shift to public programs.”

I started thinking about the one truism that governs human behavior nearly universally: Every person protects their own interests first. And I thought of PCI’s name: Property and Casualty Insurers Association of America. “Property and casualty.” Ay, there’s the rub!

There’s no room for P&C in opt out! ERISA-based opt out uses only health insurance and disability insurance.

Workers’ comp is the mainstay of the P&C industry, the single biggest commercial line and the gateway to a whole host of much more profitable lines.

If opt out spreads beyond Texas, it is hugely threatening to the interests of the PCI members because they stand to lose considerable business, particularly if opt out migrates to the bigger P&C states.

PCI is protecting its own interests (or those of its members) by objecting to opt out.

And I don’t blame them. Their impression of this threat is real.

Michael Duff, a professor of workers’ compensation law at the University of Wyoming, told WorkCompCentral, “These are interested observers. They’re going to have an agenda. They represent insurers who are in the workers’ comp business.”

Bingo.

“Every commercial actor that participates in traditional workers’ compensation has an interest in seeing traditional workers’ compensation continue,” Duff went on. “But that traditional workers’ compensation imposes costs on employers. There is now a group of employers who would like to pay less, and Bill Minick has developed a commercial product that is in competition with this other conceptual approach to handling things.”

Here’s THE fact: Traditional workers’ compensation and ANY alternative work injury protection plan require vendors pitching wares and services to make the systems work.

Insurance companies are as much a vendor in either scenario as physicians, bill review companies, utilization review companies, attorneys, vocational counselors, etc.

Each and every single one makes a buck off workers’ comp, and each and every one has an interest in maintaining the status quo.

See also: States of Confusion: Workers Comp Extraterritorial Issues

Arguing that one system is better than the other without admitting one’s own special interest is simply hypocrisy.

Workers’ compensation is going through some soul searching right now. Employers leading the debate are asking, “Why stay in a system that facilitates vendors’ interests ahead of employers or workers?”

THAT’s the question that BOTH the P&C industry and the opt out movement need to answer. Further debate about the merits of one over the other is simply sophistry.

This article first appeared at WorkCompCentral.

uncompensated

Time to Focus on Injured Workers

When WorkCompCentral released a report, The Uncompensated Worker, I wrote about how a work injury affects family finances. I applied several realistic work injury scenarios to each state. In 31 states, workers receive a reduction in take-home pay of 15% or more when they’re injured on the job. In half the states, households with two median wage earners—one on work disability and the other working full time—cannot afford to sustain their basic budget.

These findings confirmed what workers’ comp claims adjusters, attorneys and case managers already know: Many injured workers live on the edge of financial collapse.

But the findings are by no means conclusive.  The research done for “The Uncompensated Worker” was too limited. I know, because I did it. To really understand the financial experience of being on workers’ comp benefits, one should run not a handful but thousands of scenarios through a statistical analyzer and then compare the data results with actual cases researched through interviews.

The research agendas of the workers’ comp industry rarely involve looking at the worker her or himself.

Instead, the industry has funded research mainly to understand the drivers of claims costs, specifically medical care. This focus can be explained. Over the past 25 or so years, the workers’ comp industry has absorbed a huge rise in medical costs, more and more layers of regulation relating to medical treatment and even more specialties needed to deliver or oversee medical care.

To illustrate the extent of this industrial-medical complex: Nationwide spending on “loss adjustment expense,” a proxy for specialist oversight of claims, has grown annually on average by 9.4%  since 1990, while total claims costs have risen on average by 2.5%.

The quality of industry-funded research has improved, because of better data and strong talent pools in places like the Workers’ Compensation Research Institute (WCRI), the California Workers’ Compensation Institute and the National Council for Compensation Insurance. Their research focuses on cost containment and service delivery. These two themes often intertwine in studies about medications, surgeries or medical provider selection.

It’s time to pay more attention to the worker. Close to a million workers a year lost at least one day from work because of injury.  We hardly know them. Bob Wilson of Workerscompensation.com predicts that, in 2016, “The injured worker will be removed from the system entirely. … Culminating a move started some 20 years ago, this final step will bring true efficiency and cost savings to the workers’ comp industry.” Industry research, one might say, has left the worker out the system.

An example of how the worker is removed can be seen in how the WCRI did an analysis of weekly benefit indemnity caps. These caps set a maximum benefit typically related to the state’s average weekly wage. (The methodology has probably not been critiqued by states for generations, despite better wage data and analytical methods.) The WCRI modeled different caps to estimate the number of workers affected. But it did not report on what this meant to workers and their families; for example, by how much their take-home benefits would change.

As it happens, Indiana is one of the worst states for being injured at work; it has close to the stingiest benefits for a brief disability. You are not paid for the first seven calendar days of disability. Benefits for that waiting period are restored only if you remain on disability for 22 calendar days. Take-home pay for someone who is out for two weeks or less will likely be 83% less than what it would have been without injury. An Indianapolis couple, both at the state’s median wage, cannot afford a basic month’s budget for a family of three when one is on extended work disability. These poor results are partly because of Indiana’s benefit cap, which is one of the lowest in the country. The weekly benefit cap used in the report, a 2014 figure, was $650.

Les Boden, a professor at Boston University’s School of Public Health, read a draft of “The Uncompensated Worker.” For years, he has studied the income of injured workers and the adequacy of workers’ compensation benefits. He told me, “Studies have shown that many people with work-related injuries and illnesses don’t receive any workers’ comp benefits. I don’t think that the problem is too little research. It’s political. Unfortunately, workers are invisible in the political process, and businesses threatening to leave the state are not.”

I am not sure how the politics of this issue can change until the strongest research centers in the industry begin to pay attention to the worker.

This article first appeared at workcompcentral.com.

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.

Better Outcomes for Chronic Pain

The workers’ comp industry is burdened with perhaps 200,000 or more injured workers on long-term opioid treatment for chronic pain. Many more workers enter these ranks yearly. For 10 years, I have observed this awful misery slowly accumulate. But claims payers can do more to prevent new case and resolve “legacy” cases. It will require from them more commitment to best practice care and a lot more frank, open collaboration among themselves and with medical providers.

Conservative care is hugely under-exploited as an approach to prevent and resolve chronic pain among injured workers. Workers’ compensation claims payers would not have paid so much for opioid treatment, failed surgeries and claims settlements had they adopted conservative care decades ago, when research support for this approach was already pretty strong. The failure to promote this approach cost the policyholders perhaps $100 billion in higher premiums and cost injured workers years of disability and, in some cases, funerals.

By conservative care, I refer to functional restoration programs, which came into existence in the 1970s or earlier. Cognitive behavioral therapy became established in the 1980s. Coaching, as a non-medical method of helping persons in pain, has been around forever but recently gained visibility as a scalable form of intervention. There’s a lot of innovation going on, such as the PGAP program imported from Canada and a number of nerve-stimulation services such as Scrambler in New England.

Payers need to learn how to create conditions within which conservative care can prosper rather than repeatedly blossom only to die.

A friend prods me to use the term “evidence-based medicine.” But “conservative care” is my choice for an umbrella term because it is easy to remember, though inexact.

A few years ago, I talked by phone with a senior medical case manager at a claims payer in Kentucky, an epicenter of opioid prescribing excesses, who had never heard of functional restoration programs. This reminded me of the Harvard professor who spent a year in Munich without ever hearing about Oktoberfest.

The long history of insurers includes many instances where they brought risk management solutions like conservative care to the market. The first modern evidence of that goes all the way back to London fire insurers in the late 17th century. Mutual insurance companies played an essential role in introducing automatic fire-suppressing sprinkler systems to American factories in the late 19th century.

In my special report published by WorkCompCentral, “We’re Beating Back Opioids – Now What?”, I propose that claims payers and selected medical providers collaborate for the purpose of better success in treatment. This is particularly valuable for conservative care. The collaborations would allow each party to act on its own but to pool information. Periodically, analysts will dig into the database to report on the group’s experience on outcomes and costs.

The healthcare community, sometimes with the explicit support of health insurers, engages in collaborations to improve health outcomes. A Health Affairs article in 2011 is titled, “How a Regional Collaborative of Hospitals and Physicians in Michigan Cut Costs and Improved the Quality of Care.” The article addresses surgical collaborations, for instance:

  • Michigan BCBS has been supporting since 2006 a bariatric surgery data-sharing project involving 27 hospitals and some 7,000 patients a year.
  • Its major general and vascular surgery collaboration recorded 50,000 patients a year.

The article concludes that “results from the Michigan initiative suggest that hospitals participating in regional collaborative improvement programs improve far more quickly than they can on their own. Practice variation across hospitals and surgeons creates innumerable “natural experiments” for identifying what works and what doesn’t.

Elsewhere, collaborations among independent medical providers have been noted in asthma, diabetes, surgery and congestive heart failure.

Another analysis of collaborations commented that “real improvements [in treatment] are likely to occur if the range of professionals responsible for providing a particular service are brought together to share their different knowledge and experiences, agree what improvements they would like to see, test these in practice and jointly learn from their results.

Claims payers need to help this cross-fertilization happen. Hard as it may seem, they need to “own” the need to build conservative care resources in their markets. Physicians don’t understand conservative care; referral patterns are not set; and the providers of conservative care are often under-resourced. Claims payers need to step up.