Tag Archives: workers compensation

Impact of COVID-19 on Workers’ Comp

There is much discussion right now on the impact that COVID-19 (Coronavirus) will have on workers’ compensation. Most of this discussion has focused on the potential for claims activity arising from the virus. The determination of whether a communicable disease is “work-related” is a case-by-case evaluation. The large employers that I work with tend to retain risk on both their workers’ compensation and employee benefits programs. Thus, they are not concerned about which financial bucket the money comes from but are prioritizing caring for their workforce instead. Potential claims arising from COVID-19 are not the focus of this column. Instead, I’m looking at how the challenges arising from this virus will affect the workers’ compensation industry.

Individual Claims Costs

In the short term, expect the overall costs per workers’ compensation claim to rise due to the increased duration of claims caused by many factors: 

  • There will likely be delays in treatment as the healthcare industry focuses on fighting COVID-19. That means physicians, hospitals and testing facilities are tied up and that elective surgeries are on hold until this crisis passes. This challenge is not unique to workers’ compensation, as the group health and Medicare setting will be experiencing similar delays. 
  • Modified work will likely be unavailable for many employers, due to the significant downsizing of workforces in many industries, including retail, restaurant, hospitality and airlines.
  • Return to work in any capacity may be a challenge for these same industries. In wage-loss states, indemnity benefits often cannot be stopped without a return to work. 
  • Courts are mostly closed in many states, halting the workers’ compensation adjudication process. 
  • Outside job placement efforts through vocational rehabilitation will be almost impossible, with so many employers idled and a significant percentage of the workforce looking for work. 

Total Claims Costs 

Due to the significant decline in people working in most industries, there will be fewer new claims over the near term. With so many businesses closed or functioning with reduced operations, there are simply fewer opportunities for workplace injuries to occur. 

On the flip side, it is too early to tell what the ultimate impact of compensable virus claims will have on the industry. No one can rule out that the costs from these claims will be as high, or even higher, than what we would experience typically. Specific industries, such as healthcare, some retailers and occupations such as first responders, could see an increase in claims and costs due to the combination of virus-related exposures and the significant overtime hours by their workforce.

Nationally, there is a significant increase in the number of people working from home in response to the outbreak. There is very little case law out there regarding what constitutes a compensable claim when working at home. It will be interesting to see what claims arise from these situations and how courts around the country interpret these situations.

See also: How Coronavirus Is Cutting Connections  

A decrease in total claims may mean less revenue for industry vendors with fee-for-service and per-claim business models such as medical management providers, including utilization review, bill review and case management. Third-party administrators are also often on per-claim contracts, and fewer claims could mean less revenue for them.

Later this year, there could be a spike in claims as things start to return to normal. There will be a massive influx of workers who are both deconditioned and may have forgotten procedures and loss-prevention policies. It will be challenging for employers to ensure their returning workforce is fit for duty and retrained appropriately.

Other Claim Considerations

As many restaurants shift to a delivery-only model, employees who are not usually commercial drivers find themselves adapting to this new role. Could that lead to a spike in work-related auto accidents in that industry? Possibly, but a more significant concern may be that many businesses may not have adequate commercial auto coverage because they did not have drivers until now.

Also, as non-essential businesses close, and many companies shift to a work-from-home model, there should be fewer auto accidents overall.

Industry Financial Implications

The dramatic drop in payroll for many employers may also mean a reduction in the corresponding workers’ compensation premiums they pay. It’s relatively simple; fewer workers equals lower premiums. Look for overall industry premiums to drop sharply for 2020 compared with prior years. Lower premiums also mean lower revenue for state regulatory agencies that are often funded by premium taxes and assessments.

The insurance industry, in general, and workers’ compensation carriers, in particular, depend on investment income as an element in their overall pricing model. With the Fed interest rate at zero and the massive drop in the stock market, those investments will be down across the board. Carriers may have to charge higher rates to make up for the significant decline in investment income.

Like all industries, the workers’ compensation industry is dealing with significant business disruption because of COVID-19. Many offices have closed, and, where possible, companies are implementing work-from-home models. Companies that focused on business continuity planning for such situations have an advantage over competitors that may not have been as diligent in these areas. It is imperative that insurance companies be included as “essential businesses” in any state or local shut-down orders because of the important financial backstop the industry provides to the economy and the workforce in general.

Finally, almost all in-person industry conferences are canceled right now until mid-May and possibly longer, including two of the largest industry events of the year, RIMS and the NCCI Annual Issues Symposium. The conference business is a challenging one because it requires you to invest up-front to secure facilities and resources with the hope you will be able to recoup that investment with sponsorships and attendee fees. Conferences have incurred costs preparing for now-canceled events, and they may not be able to recover those costs. Those unrecouped costs could put a significant financial strain on some event budgets, especially the smaller events that tend to operate with no surplus to tap into year-to-year.

See also: Coronavirus: What Should Insurers Do?  

On a positive note, most workers’ compensation carriers have strong balance sheets that will enable them to come through these challenges. The current crisis is an example of a time when the financial strength rating of your carriers matters most. Injured workers will continue to receive their benefits, and carriers are being very responsive to policyholders, including timely payment of claims. Many claims administrators use electronic banking where allowed, which means even injured workers under confinement receive their benefits in a timely matter.

COVID-19 will affect the workers’ compensation industry well beyond claims related to the virus. However, our industry is strong and resilient, and we will persevere and adapt to these challenges.

What Robots Mean for Workers’ Comp

History provides interesting insights into the debate around automation and employment. In 1632, King Charles I of England banned casting of buckets, for fear that allowing it would ruin the livelihood of the craftsmen who were making the buckets the old-fashioned way. In 1811, the Luddites in England started a movement where they smashed machines that they viewed as threats to employment. These examples have occurred with increasing frequency since the industrial revolution began. Not coincidentally, the per capita income in the world doubled every 6,000 years prior to the revolution and every 50 years afterward.

According to a Pew study, 52% of Americans think that much of our work can be done by robots, but only 38% believe that it could replace the type of work that they do. Additionally, 76% of Americans believe that robots would increase the inequality between the rich and poor.

But standing in the way of change, when viewed through the lens of history, has rarely worked. The key is to focus on the dislocated individuals and provide training to make sure that they can move into new positions. Historically, new positions tend to be more highly compensated, fueling an upward cycle.

It is clear that the pace of change and automation is increasing. In January, the parent company of Giant, Martin’s and Stop & Shop said it would introduce 500 robots to its supermarkets this year. Sure enough, if you Google “Marty the Robot” – a large, grey cone with a bright smile and “googly” eyes — you will find out that he is hard at work at 40 Stop & Shop’s in New Jersey, finding and reporting spills in the aisles and calling for a mop.

It will be interesting to see what retailers follow suit. Walmart has given robots a thumbs up. Target? A thumbs down.

The pros and cons of automation are widely written about. The pros: eliminating mindless tasks, saving money on employee costs, having a safer working environment. The cons: reducing human contact with the customer, eliminating jobs for people who need then and decreasing flexibility in the workplace as automated tasks occur at programmed times.

See also: What’s Beyond Robotic Process Automation  

As providers of workers’ comp insurance, we are watching the rise of automation in the workplace closely. One of the ways we do this is to analyze actual claims that are submitted by our insureds, which are most often small to medium-size businesses. In the restaurant sector, we analyzed over 84,000 claims. and in the retail area we looked at more than 20,000.

One area where we are convinced automation could help reduce worker injuries is in coffee shops. Workers who operate espresso machines eight hours a day are reporting repetitive motion injuries akin to “tennis elbow.” In fact, so-called “Barista Wrist” is now a recognized medical condition. Our study of workers’ comp claims in the restaurant industry found that cafés had more lost time due to injuries than any other restaurant type. And the cause of the highest number of days needed to return to work in cafés – 366 days – was due to wrist injuries.

In a parallel from the retail sector, workers in hair salons are reporting hand, wrist and arm injuries from drying hair with a blow dryer, setting the stage for a new condition that could be called the “Brazilian Blow Out Arm.” Perhaps an innovative, automated “Robot Blow Out” could eliminate these repetitive motion injuries.

Among the most dangerous and expensive injuries in our retail analysis (which includes some wholesale) came from workers engaged in the preparation of meat, poultry and fish, which involves cutting hazards caused by sharp tools and machinery. The average paid claim for a worker who sustains a cut ranges from $4,200 – $7,800, depending on whether it was caused by a non- powered tool, by a powered tool or by being caught in or between machinery.

But once again, repetitive motion injuries in meat, fish and poultry preparation are by far the most expensive at $16,200 for the average paid claim. Clearly, this is an area where more automation would be helpful.

See also: How Robotics Will Transform Claims  

All of this gets us back to our original thesis that history has shown that automation is a net positive for workers which, over time, leads to people taking higher-paying jobs. Yes, jobs are eliminated, for sure. With machines, come risk and injuries, that’s undeniable. But it is also clear that robots will take over the mindless, thankless (and dangerous) jobs and likely lead to a workplace that is safer overall.

With all that said, there is one robot that I don’t want to see and that’s: “Matt, The Workers’ Comp Insurance Executive.”

Electrodiagnostics: a More Powerful FCE?

My recent post on functional capacity exams (FCEs) is a great lead-in to considering another level of related technology. Let’s explore electrodiagnostics as arguably a more powerful arrival in functional exams.

First, let’s recap what quality means in a functional capacity exam: An FCE requires a process that is objective and consistent with the proper balance between specificity to body parts and sensitivity to critical indicators, including pain, range of motion and strength. An FCE must indicate illegitimate effort and attempts to “game” the test by subjects.

I submit to you that, the more a functional exam process can move away from human-tester interventions and totally separate testing steps, the closer it gets to nirvana. This construct is the essence of electrodiagnostics.

A routine FCE process involves various separate tests, including nerve conduction, range of motion and strength. Even with the most advanced equipment, this presents separate processes to assess for validity and to try and formulate into a whole-body issue. What if one test did all of this at once?

Contemplate the electrodiagnostic functional assessment (EFA), where a test subject performs a single test sequence on specialized EFA equipment that measures multiple factors. This provides instant objective credibility. Stated simply, combined factors of muscle strength, pain and range of motion and others need to align in a logical pattern as depicted by computerized readout, or the subject is immediately shown as self-limiting his capability.

The EFA is arguably more accurate than the common FCE in assessing work capacity. EFA has also been proven useful in more specific applications, such as determining the need for hardware removal in post-surgical cases with alleged recurring pain problems.

Consider further that, because the EFA is such a consistent test, it is highly credible as a comparison to prior baseline. The EFA used as a base-line test at time of hire can be saved as a data file without opening until an employee might have an alleged injury at some later period. At such occasion, a new EFA can be performed to compare with the baseline to see what, if any, alleged changes in capacity and pain threshold have occurred. This definitive comparison has held up in court cases, making the EFA evidence as worthy as an MRI would be in comparing pre- and post-injury pictures of a joint or body part.

Quick Tip: Learn More About EFA and the Possible Application to Your WC Claims

– Google “electrodiagnostic functional assessment” to review white papers and scholarly details around the EFA and its applications and case studies.

– For more information, search out Emerge Diagnostics, which has pioneered the application of EFA and which is making efforts to bring EFA to the forefront of medical and legal use. I do not promote specific vendors in “Quick Tips,” and this article is for informative purposes only. However, the EFA is currently a sole-source situation, and reviewing the studies and successes of Emerge Diagnostics is of educational benefit.

– If you want to be cutting edge, do a trial. Pick a WC case or two that is stalled without adequate determination of disability, causation, apportionment or need for surgery, etc. Work to get an EFA entered as evidence and see if the case can turn.

– If you do try EFA, let me know your results. I would like to continue related reporting on this and see how much future influence EFA might have on the larger WC landscape.

workers' comp

Workers’ Comp: Where the Smart Money Is…

What’s with all the investor interest in workers’ comp services? There are several dozen private equity (PE) firms looking hard at the workers’ comp services business today, with many pursuing acquisitions of companies large and small. While their approaches, priorities and goals may differ slightly, there are several reasons why their attention will likely persist for some time.

First, there are a lot more investment firms out there these days than five or 10 years ago, with a lot more capital to invest. That means lots of smart people with big bank accounts are looking to park millions of dollars, which means there’s a lot of competition for attractive companies.

Second, some comp services companies have gotten pretty big, with earnings in the tens of millions of dollars and revenues north of $200 million. Finding potential targets, conducting due diligence and going through the deal process takes about the same amount of time and staff if it is a $50 million or $350 million deal. Obviously, PE firms would rather do a couple or three large deals than a bunch of smaller ones as it’s a lot less work on the front end, and a lot less to manage and oversee after the deal is done. And PE firms just seem to like companies with more revenue.

Third, what used to be considered a problem — the regulatory risk associated with a workers’ comp company — is now seen as a strength when compared to a non-work comp healthcare firm. Investors see the 51 regulatory bodies affecting workers’ comp as creating far less risk than the single regulator driving Medicare, Medicaid and most health insurance programs. Investors don’t know what’s going to come out of CMS as reform is implemented, so PE firms are hedging their bets by going where, in a worst-case scenario, they’re going to get hurt in one or two big states.

Fourth, there are a lot of inefficiencies, stodgy business practices and just plain poorly run sectors of the workers’ comp business. PE firms make a lot of money by stripping out inefficiencies, delivering better performance, streamlining workflows and processes, removing cost and delivering more value. Anyone who’s spent any time at all in work comp knows that there are a plethora of opportunities out there to do all of these.

Bill processing, analytically driven medical management, intelligent utilization review, provider clinics, complex case services, IMEs/peer review and chronic pain management and addiction services are just a few sectors where there’s a ton of opportunity.

Interestingly, no PE firm has yet taken advantage of the biggest opportunity in workers’ comp. That opportunity is to buy a comp carrier/TPA, rationalize the claims and medical management process, write workers’ comp insurance and make huge profits by controlling medical costs and delivering much better outcomes. The investment executives I’ve spoken with about this seem to be afraid of the risk; what if they do it wrong, or get a bunch of bad claims, or whatever?

To which I respond: You can’t do it any worse than many of the current comp carriers, so what are you waiting for?

A Smell Test for Wellness Programs

Here is a wellness needs analysis to help you choose the best approach for your company. It is based on wording, definitions, regulations and related government proposals from the Employee Benefits Security Administration, Department of Health and Human Services and other ACA-related government writings easily found via Google. This serves to set a high-level framework — certainly not “legal advice,” yet respecting that, when it comes to government, today’s suggestions are tomorrow’s compliance issues.

More importantly, this perspective takes out the profit-driven vendor’s depiction of what might be best for your company. The essence is pleasantly simple. Wellness is defined by government in two forms:

1) Participatory Wellness: Provides health-related opportunities equally to all workers, such as reimbursed gym membership, classes on weight loss, smoking cessation and other health/lifestyle issues. Participants can be offered low-level rewards like gift cards.

2) Health-Contingent Wellness: Programs that seek to identify individual health factors and set individual requirements for risk conditions. The incentive/penalty aspects can be as much as 30% of the premium costs for the individual. Basically, smokers and employees with high cholesterol or body mass indices pay more unless they follow a “reasonable” regime with “reasonable” results to address these problems — “reasonable,” as a government term, being clear like mud.

I would wager most readers gravitate toward participatory programs, correctly assuming that they are less expensive, less intrusive and, frankly, more respectful of employees’ desires. Participatory programs generate goodwill, in the spirit of wellness, and help individuals who are determined to help themselves. Optimally applied, they offer a gentle positive push via passive awareness efforts, essentially “farming” for participants as opposed to actively “hunting” for candidates via the health screenings required in health-contingent programs.

Participatory programs seem like a no-brainer and therefore raise the question: Is there any logical place for health-contingent programs? After all, they cost a ton (averaging more than $600 per employee annually) and have not been shown to improve health or return dollar savings.

In some sense, they are totally illogical in presuming that today’s employees are tomorrow’s health risk for the employer. Consider that when any employee leaves, the employer has wasted the health-contingent wellness dollars spent on him. Further, few employers today offer retirement health plans and therefore do not “own” the highest-risk period of most employees’ lives.

Let me simplify further. When selling a house, you cancel and pro-rate your homeowners insurance on the day of closing. I submit that health-contingent wellness is as silly as allowing the next homeowner to use the remainder of the policy you already bought.

So, back to the question: Is there a logical place for health-contingent programs? Surprise! Absolutely! And the impact would be strong and immediate.

Health-contingent wellness makes sense in workplace environments with “presumptive benefit” requirements for workers’ compensation. Police, firemen and first responders in most jurisdictions are granted “presumptive” WC benefits for heart, hypertension, lung and related issues arguably connected to the stress of the job. Movements are in play to widen these benefits to include mental health disorders and cancers and to include other classes of public employees.

Most public workforces have low turnover and retirement health plans. Therefore, investing in tomorrow’s health today is a justifiable hedge against long-term risk. Also, and more importantly, presumptive benefits involve issues that can be mitigated by condition-specific wellness programs. Controlling cholesterol, high blood pressure, weight, anxiety, smoking, alcohol, etc. is effective and constitutes money well spent. Health-contingent wellness would identify those with health risks and set them on a personal improvement plan with expected milestones. Targeted employees would have as much as 30% of premium contribution at risk for noncompliance. The workforce, as well as the public, would be better served.

Editorial comment: I realize that engaging some public unions in health-contingent wellness presents a difficult collective bargaining issue. However, I submit that these employees must consider public interest. They should not be able to have it both ways. One can’t argue that the nature of the job is clinically connected to health conditions yet avoid known methods to mitigate those health risks. One can’t enjoy a luxury of expanded WC benefits without personal responsibility for health. Besides, the ACA says it should be so!

Quick Tip – Consider the Spectrum in Choosing Your Wellness Approach

For many employers, participatory wellness makes more sense. But don’t assume too quickly before making a critical assessment of your workforce.

Start from the extreme example of public employees with presumptive WC benefits and work backward to find your risk level. Questions to ask include: Do you have low turnover? Do you have an aging workforce? Do you have retirement health obligations? Are there specific issues that you can identify affecting today’s workers’ comp costs such as obesity, diabetes or other co-morbidities? What are today’s health costs telling you about your workforce? Can you make a near-term, dollar-savings case for addressing individual employees head-on in a health-contingent wellness program?

If you answered any with “yes,” then you may choose the route of health-contingent wellness. Approach this with precision. Manage health issues with proven programs and specific improvement expectations. My personal suggestion for vendor contracting is to install some mid-program “escape clause” if interim expectations and milestones are not met.

Common sense can prevail when it comes to wellness. Good luck!