Tag Archives: workers comp reform

What Do New Workers' Compensation Reforms Sweeping the Country Have in Common?

AOECOE – Not Just Another Acronym

California Senate Bill 863 was passed in the fall of 2012 and went into effect on January 1, 2013. Senate Bill 1062 was just signed into law by Governor Mary Fallin of Oklahoma and will take effect January 1, 2014. On April 30, 2013, Tennessee Governor, Bill Haslam, signed into effect Senate Bill 200. House Bill 154 is expected to go into effect in Georgia in July, 2013. What are these bills? The first of many sweeping Workers' Compensation reforms. A common theme in these bills and other pending reforms is to level the playing field for employers and accept only those claims that arise out of the course and scope of employment, AOECOE.

A well-known term of art in the Workers' Compensation arena, AOECOE is not just an acronym. It is transitioning from a term of art to a statement with teeth, as reforms are actually including such wording into bills. The purpose of doing this is to establish whether an employee's alleged injury is work-related and happened in the course and scope of employment, or whether the injury is non-industrial or affected by third parties.

Workers' Compensation is a no fault system and thus benefits the injured worker, as, in order to receive benefits, he or she does not need to prove that the employer was negligent. However, it is the injured party's burden to show that the injury did, in fact, occur while at work, while employed as an employee and while undertaking some activity for the benefit of the employer. The injury itself must have been caused by the accident or employment conditions, and not from some other non-industrial related factors or degenerative factors.

The determination of AOECOE has long been an OSHA policy. OSHA's Injury and Illness Recordkeeping Regulation Section 1904.5: Determination of work-relatedness contained under section (a) basic requirement states in order for an injury or illness to be work-related an event or exposure in the work environment is either caused or contributed to the resulting condition or significantly aggravated a pre-existing injury or illness. Work-relatedness is presumed for injuries and illnesses resulting from events or exposures occurring in the work environment.

California's SB 863 was signed into law by Governor Brown on September 18, 2012, for a January 1, 2013, effective date. While certainly not the first bill to consider AOECOE issues, it is one of the most significant Workers' Compensation reform bills to specify AOECOE language. SB 863 calls for an Independent Medical Review (IMR). While this process may be problematic for an employer, since an IMR can be requested only by an injured worker following a denial, modification, or delay of a treatment request through the utilization review (UR) process, the bill specifically states that this does not apply if the injury is in question for AOECOE reasons.

On May 8, 2013, Oklahoma Governor Fallin signed into law historic Workers' Compensation reform, Senate Bill 1062. The bill defines compensable injury as arising out of the course and scope of employment and does not include: any strain, degeneration damage or harm to disease or condition of the eye or musculoskeletal structure or other body part resulting from the natural result of aging, osteoarthritis, degenerative process or pre-existing, except if a treating physician clearly confirms an identifiable and significant aggravation arising out of AOECOE.

On April 29, 2013, Tennessee Governor Haslam signed a Workers' Compensation reform bill into law, SB 200. It specifies that injuries arise out of and in the course and scope of employment only if proven by a preponderance of evidence that employment contributed more than 50% to causing the injury, AOECOE.

In my experience, the majority of injuries are real, but they are not AOECOE. Injured parties may exaggerate the severity and extent of their injuries or may attempt to hide pre-existing conditions. So how do any employers determine if injuries are AOECOE? The answer is simple. They need to ascertain what the employees' statuses are pre-injury. This is effectively done with baseline testing.

Baseline testing is a bookend solution. To be effective, it should be objective, meet the criteria for evidenced-based medicine, be job related and consistent with medical necessity. It needs to be specific to the metrics being evaluated. A good example of a specific baseline test that is recognized in some jurisdictions by statute is audiometric testing. Hearing tests are routinely done in environments with high noise exposure to determine a baseline that is referenced once a claim is filed. This is commonly referred to as the lock box defense.

Audiometric testing is beneficial for documenting hearing loss but is not designed to address other conditions such as musculoskeletal disorders (MSD). MSDs are the most frequent and costly claims for an employer. In order for a baseline test to be utilized for MSD, it must not only be objective and reproducible, it must contain measurements to ascertain electromyography (EMG), range of motion (ROM) and function.

In addition, baseline testing must be legally defensible. In 1990, Congress enacted the Americans with Disabilities Act that outlines what makes a legally defensible test. To be legally defensible, the testing needs to be job-related and consistent with business necessity i.e. the employer must show that it “substantially promote[s]” the business' needs. It must be repeatable, objective and address functionality. Also, since baseline testing is considered to be a medical exam, it needs to evaluate some functions of the job.

Baseline testing is not a post-offer, pre-placement test, as it can not identify disability because the data is not read and no hiring decisions are made with baseline evaluations. When a work-related injury occurs, a post loss test is conducted, at which time the baseline test is read and compared to the post loss results, hence the bookends.

When compared, the results can determine if an injury exists and if it has arisen out of the course and scope of employment, thus determining an employer's true responsibility. Good baseline testing is non-discriminatory and prevents “false” claims. The sweeping Workers' Compensation reforms allow for a new definition of “false” claim: one that is not AOECOE. A false claim no longer means fraud! A proven example of an effective baseline test is the EFA-STM.

Workers' Compensation statutes are helping employers by allowing them to accept the claims that are only AOECOE. Employers need to see that they comply with legislation, and baseline testing now gives them an objective assessment to do just that.

The Changing Insurance Marketplace And How It Can Affect How Employers Manage Costs

Workers' compensation insurance, like other employee benefits programs, continue to be a major expense to most employers. Decision makers are always looking for ways to better manage their cost, but sometimes the containment can be out of their influence.

For many years, employers enjoyed lower workers' comp rates as a result of reforms signed by our previous Governor and the competitive nature of the California insurance marketplace. Late last year, the workers' comp market began to change and insurance companies began to raise rates and become more selective about which employers they would keep or consider as new customers. Rising medical costs to treat injuries, increases in the insurance company costs of doing business, as well as lower returns of investment by insurance companies also led to this market shift.

Employers who had a series of injury claims, or even a large claim, also experienced greater increases in their workers' comp premium, because of the way their Workers' Comp Experience Modification Factor calculation was changed.

As a result of these premium increases, there has been a move by employers to seriously consider a Professional Employer Organization (PEO) to take the place of their workers' comp and employee benefits programs. A Professional Employer Organization is an arrangement where an employer essentially transfers their employees to another organization who then “leases” them back to their organization. This may relieve employers of direct involvement in the management of employees, but they still retain responsibilities as a “co-employer.”

Professional Employer Organizations have historically been an alternative to employers who have had a history of claims, because the Professional Employer Organization companies seem to offer lower costs. In my experience, most Professional Employer Organizations organizations offered little or no reduction in the number and severity of work injuries and resulted in a continued increase in the employer's Experience Modification Factor.

To obtain up to date marketing information about how the major Professional Employer Organization organization view this changing insurance marketplace and how they are planning to respond to these changes, my firm's specialist contacted the seven Professional Employer Organization organizations that are utilized. The following information was obtained and it is being passed on to you, because this segment of employment and insurance providers is important for employers to know so they can make a more informed decision when considering the use of a Professional Employer Organization:

  • Those employers who are unprofitable to a Professional Employer Organization are receiving rate increases in their insurance premiums and/or administrative fees to make them profitable to the Professional Employer Organization
  • For those unprofitable employers who are not accepting the rate increases, they are being non-renewed. This action is very rare, but is a sign that the Professional Employer Organization marketplace, like the workers' comp insurance companies, are taking actions to become more profitable.
  • Professional Employer Organizations only seem to consider new employers that have at least 10 full time employees
  • The annual employees' compensation must average at least $30,000
  • Professional Employer Organizations are dropping certain industries where the PEOs have encountered consistent non profitability

This information update causes us to conclude that employers who are historically financial losers to the insurance industry are also losers to the Professional Employer Organization organizations.

It can no longer be assumed that a Professional Employer Organization is always a viable alternative to employers who are not controlling their cost of work injuries.

Claims-prone employers who feel they can just “shop” every year to get the lowest rate will probably have a rude awakening.

What are some of changes that employers need to make to avoid a history of frequent and costly work-related injuries to keep employees from becoming “patients” of the workers' comp medical system?

  • Accept that workers' comp is a way to finance claims
  • Understand that you, as the employer, are ultimately paying for each work injury — have a claim and you the employer pays it back plus more
  • Take the selection of employees and safety in the workplace more seriously — match the characteristics of the job with the characteristics of the candidate being considered
  • Take an active role in the claims process
  • Train employees in safe work practices and hold them and their supervisors accountable
  • Maintain a respectful and positive relationship with employees
  • Create an open working relationship with a medical clinic that practices “evidenced based medical treatment”
  • If you do not have the resources to make changes, hire the appropriate insurance advisor to help them

The decisions employers make will determine how profitable their enterprise will be and ultimately will influence the financial value of their business. This is one of those times where appropriate decisions need to be made. The organization's financial success and the welfare of those who are employed by the enterprise are in the “hands” of the company's leaders. Let's hope the best decisions are made.