October 2004 Archives

October 29, 2004


In these rare days of the first Red Sox championship since 1918, we take a few moments to extract some of the lessons in this dramatic triumph for managers in all types of businesses. This is not meant to be an exhaustive list (and is written, frankly, by an exhausted fan).

Hire people who are really motivated to do the work.
Have fun (but of course, work safely).
Conversely, don't hold onto people who (apparently) don't want to be there, even if they have performed well in the past.
Build a core crew of experienced and knowledgeable players. These players should welcome newcomers and make them feel part of the team.
Pay good wages (well, not that good!)
Have patience -- as long as your trust is placed in people who really can do the work.
Accommodate injured workers. Highly motivated employees want to work. Team up with them and their doctors to make it happen.
Don't let individual egos get in the way of the team.
Never give up. Even in the darkest hour, with defeat looming, you might be able to steal a base and turn the situation around.
If you're lucky enough to win, start planning for the next big season.

Our apologies for those who do not follow baseball. For all the others, your comments and additions to this list are welcome.

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October 27, 2004


West Virginia has a message for employers that have defaulted on workers comp obligations in one company, and moved on to another: You can run, but you can't hide. The state has an aggressive plan to collect from deadbeat employers who owe the state millions of dollars in unpaid workers compensation claims. We found this story interesting after just having discussed the implications of insolvencies on state guaranty funds a few days ago. It is just such a scenario prompting West Virginia's crackdown.

"The fund currently has $3.3 billion in unfunded liability because it needs about $4.2 billion invested to cover the projected costs of the claims it will pay out over the next 40 years but only has about $900,000 invested."

The state has identified deadbeats through a new state Employer Violator System that crosschecks data from the Tax and Revenue Department database to identify ties between active companies and defunct companies, looking for shared officers, owners, and principals. They have identified nearly 400 companies that owe the fund more than $124 million in unpaid debts, and they plan to track them down and take aggressive actions:

"The system was developed to comply with a 2003 legislative mandate that state agencies revoke contracts, yank licenses and permits and otherwise block companies and individuals from doing business in the state if they default on their workers' comp obligations."

We've certainly heard of many state efforts to crack down on employer fraud - it seems as though this issue is particularly prominent right now. There is no doubt some relation between a tough economy when employers are squeezed and a spike in firms that fail to insure their employees. Add to that, the numbers of companies that fail in a bad economy, defaulting on obligations. By tracking senior managers from one business venture to another to collect debt, West Virginia's initiative raises the stakes for noncompliant employers, althought there will still be issues to sort out.

"...the agency is still debating is how close the association must be between a defaulted company and other companies before those other companies also end up being barred from doing business in the state."

This bears watching - some issues will no doubt play out in the courts. It may be good news for injured employees and taxpayers who have been stuck with bills. Compliant employers and insurers who bear a cost burden for the sins of the few should also applaud aggressive efforts to crack down on fraud wherever it occurs.

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October 25, 2004


Roberto Ceniceros of Businss Insurance points to a recent interesting decision by California's 2nd District Court of Appeals in Los Angeles dealing with general and special employers. The case involved a claim by an employee of RemedyTemp, a temporary staffing firm, considered the general employer; the employee was injured while on assignment at Jacuzzi Inc, the contracting or special employer. Normally, Remedy Temp's insurer would be responsible for the claim, but in this case, the insurer - Reliance - was in liquidation. The court found that Jacuzzi - not the California Insurance Guarantee Association (CIGA) - was responsible for the claim.

There are several interesting issues involved in this case, perhaps more than can be easily addressed in one post, but we'll give it a try. The whole issue of "general" vs. "special" employers is one facet worth discussing. But by way of laying groundwork, let's first look at the issue of employee protection when an insurer goes belly up. Sadly, this is not an uncommon scenario in recent times. In the first quarter of 2004, NAIC recorded 20 property casualty insurer insolvencies.

In this case, the original insurer, Reliance National, went into liquidation. While remedies vary state to state, most jurisdictions have an established state guaranty fund as an insurer of last resort to ensure outstanding workers comp claims are paid. A guaranty fund is usually funded through assessments of a state's licensed insurers. If an insurer fails and a claim is pending, the guaranty fund generally pays the claim and seeks recovery through litigation. Generally, guaranty funds leave no stone unturned in an effort to exhaust any other available insurance .

This is a simplistic summary of a much more complex issue. The Insurance Information Institute (III) has an excellent overview on the issue of insurer insolvencies and state guaranty funds that is well worth a read. Just look at how the Reliance insolvency affected Pennsylvania and the tsunami effect it had on other states:

The Pennsylvania Insurance Department is seeking to recover hundreds of millions of dollars from former executives of the bankrupt Reliance Global Holdings and its insolvent subsidiary Reliance Insurance Company and also from companies that the department says owe the company money. Reliance has only about $5.9 billion in assets, which are being disbursed rapidly because the company has to pay claims as well as the salaries of administrative staff and law firms that keep the firm running until the liquidation process is complete. The company has 144,000 claims amounting to $8.7 billion, almost twice as many claims as expected. Every state has been affected by the insolvency, but those most severely impacted are California, New York and Texas. At the time Reliance was declared insolvent it had 187,000 unsettled claims. In a lawsuit filed in June 2002 in Philadelphia, the insurance commissioner blamed the company's executives for the failure, charging them with draining cash from the company to support their "lavish lifestyle." Reliance Insurance Company, established in 1817, is the largest insurance company to be liquidated in U.S. history.

Guaranty funds have been severely challenged by the flood of insolvencies in recent years. For example, III says that in California, where may insolvencies have occurred, the Guaranty Fund faced a more than $750 million shortfall, no small part of the recent crisis.

In the case at hand, Mark Micelli v. Jacuzzi, Inc., Remedy Temp, Inc., American Home Insurance Co., Reliance National Indemnity Co., and California Insurance Guaranty Association (PDF), the court reaffirmed the idea of CIGA as an "insurer of last resort," and found that joint and several liability existed between Remedy Temp and Jacuzzi, and that Jacuzzi's workers comp insurer, American Home Assurance, qualifies as "other available insurance."

The implication for temp staffing agencies remains to be seen. According to Ceniceros' report:
The appeals court ruling could cause customer dissatisfaction for RemedyTemp and "could affect thousands of companies that, in part, rely on temporary staffing to avoid the costly overhead associated with carrying additional workers compensation insurance," RemedyTemp said in a statement.

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October 22, 2004


There are a lot of bleary-eyed workers staggering to their jobs across New England and all across America. This year’s baseball playoffs have provided riveting drama (and not just because the Red Sox have miraculously made it to the World Series!). Marathon games have kept fans up well past their usual bedtimes. For those viewing the epic confrontations in bars and restaurants – a rather significant number, we believe -- mid-week consumption of alcohol is far above normal levels. Fans may have difficulty sleeping: if your team wins, you might be too excited to sleep. If your team loses, you might be too upset to sleep.

So what, if anything, does this have to do with workers compensation? Fatigue is an important, if not very well understood factor in workplace injuries. A quick review of Better Health Channel’s description of fatigue reveals that the baseball playoffs have a high potential for increasing fatigue in the workplace. Workers who do not get enough sleep, or who drink more than usual the night before, are more likely to make mistakes as they take on routine tasks in the workplace. All it takes is a moment of inattention to produce an automobile accident, a sliced finger or a slip off a ladder. These euphoric times (well, not so euphoric for fans on the losing side) are full of danger.

So what should managers do? Well, assuming managers and supervisors themselves are getting enough rest in these tumultuous days (based on my personal observations, this is not a safe assumption), they need to keep a closer eye than usual on workers as the latter go about their customary tasks. If they spot moments of inattention, they should talk directly to the worker. Encourage a tired worker to take a coffee break, or vary the work pace. If a worker is suffering from extreme fatigue, send him or her home (but not driving their own vehicle – arrange some other form of transportation!).

It will be interesting to review the industrial accident data for mid-October 2004. I suspect that frequency trends will be up, at least a bit. In the meantime, savvy managers should keep a close eye on the workforce. Good luck…And Go Sox!

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October 22, 2004


The August issue of Health Affairs carried a recent study issued by Emory University revealing that more than half the overall growth in cost of health-care spending could be attributed to the 15 most costly medical conditions. The study notes that many of these conditions are preventable or manageable conditions through interventions.

The 15 costly medical conditions (chart) accounted for 56 percent of the growth in health-care spending between 1987 and 2000; five accounted for more than 30 percent of the spending.

The study looked to the cost of treatment and prevalance as attributes in the change in spending (chart). In 8 of these conditions, the cost of the care itself primarily accounted for the rise in spending; in the other 7 conditions, increased costs were more associated with an increase in prevalance, presenting opportunities for intevention.

"For several conditions, the rise in the epidemiological prevalence appears to be responsible for the growth in treated cases. This result highlights the importance of developing interventions designed to reverse the rise in disease prevalence. This appears to be the case for pulmonary disease, which accounted for nearly 8 percent of the rise in spending over the decade. Prevalence and death rates for asthma have been rising since 1975. Factors accounting for the rise in asthma and other pulmonary disorders are not well understood. They have been linked to environmental exposures (both indoor, such as dust mites and smoking, and outdoor air quality). In addition, diabetes accounted for up to 3 percent of the rise in health care spending, with about 50 percent of the rise traced to a rise in treated prevalence. The U.S. Centers for Disease Control and Prevention (CDC) reports a continued rise in diabetes prevalence that now exceeds eighteen million among adults alone. The rise in the treated prevalence of diabetes closely tracks the substantial rise in obesity in the population. Since effective treatments exist for both of these conditions, however, it would be a mistake to see increased spending to treat them in a completely negative light."

As the work force ages, general health concerns are likely to have a greater and greater impact on the workers compensation bottom line; many health conditions can increase a person's risk for work injuries and can impede recovery when injuries do occur. Work wellness and preventive programs can help to screen, intervene, and manage many of the conditions cited on this list, and can have a salutory effect on occupational disability programs as well.

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October 20, 2004


How do you hire the right worker for the right job but avoid violating the ADA in the process? Michael at George's Employment Blawg has done stellar work in unearthing some great Web resources on the topic so we are going to pass on the fruits of his labors and offer thanks for the pointers.

First and foremost, every job should have a written job description that describes the essential functions of the job. The job descriptions section of the Job Accommodation Network is an excellent resource to help in building descriptions that are ADA compliant.

Another unique set of tools that could be useful in developing job descriptions are 450 career videos available from America's Career InfoNet. These short clips depict people performing the job, and describe the nature of the work involved in the job. In addition to being useful for developing job descriptions, they might also be helpful in planning return-to-work assignments.

Interviewing prospective employees is the next step in hiring. Michael points us to a good resource on asking the right questions to ensure ADA compliance. And to test your compliance quotient, take this quiz to see how successful you are at avoiding improper interview questions.

More information:
Job Accommodation Network
U.S. Department of Justice Americans with Disabilities Act Home Page

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October 18, 2004


It's been awhile since we added any weblogs or tools to the sidebar, but we've been collecting some excellent new links. If you haven't checked out the sidebar over on the right, make sure you do...we try to dig up some of the best workers comp-related web resources. Take the time to browse around every now and again - you'll find some good tools. And be sure to visit some of the other fine webloggers in our "blogroll."

TradePub allows you to sign up for dozens of free trade publications. Thanks to Anita at Small Business Trends for the tip.

HR Blog is an adjunct to Boston Works, the Boston Globe's job site. It features links to human resources and recruiting information.

LaborProf Blog is a weblog by Professor Rafael Gely of the University of Cincinnati College of Law.

Laboring Away at the Institute is a weblog by Tulsa OK lawyer & organization development consultant Phillip Wilson.

workerscompensation.com has a wealth of information. It's a comprehensive resource ranging from a news aggregator to state-specific information and links.

American Journal of Managed Care and the Case Management Society of America are good managed care/medical resources.

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October 15, 2004


With the dramatic shortage of flu vaccine, employers are facing some daunting problems this coming flu season. The limited available shots will go to high priority populations: very young children, the elderly and the chronically ill. For relatively healthy people, flu shots are unlikely to be available. This means, in turn, that the average workplace is much more likely to be confronted with flu-infected employees. What should be done?

The best way to prevent the spreading of flu is for the sick person to stay home. This sounds easy, but it isn’t. In our low-octane economy, with fewer employees being asked to do more and more, people are reluctant to “take a few days off.” In addition, there are millions of workers who lack paid sick leave. When these people stay home, they don’t earn any money – so they are inclined to drag themselves into work with the flu, thereby exposing co-workers and the public to possible infection. (This could be a huge problem in the fast food industry, where employee benefits tend toward the minimum.) Finally, the flu is actually contagious for one day prior to any symptoms appearing, so even cautious employees may expose others to illness.

What can be done? The Centers for Disease Control has a lot of useful information on the flu. They tell us to cough and sneeze into Kleenex and to wash our hands frequently. (Yes, mom was right about this one.) The CDC has educational posters that can be downloaded and posted for employees. The savvy safety manager should go into this flu season with a much higher awareness than in the past. There will be more flu going around than in recent years. While flu for the most part is not a workers compensation issue, it is certainly a productivity issue – one which bears careful monitoring over the coming months.

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October 14, 2004


Recently, Florida appellate courts issued rulings on two cases on issues related to deviation from employment and personal comfort. Essentially, these are nooks and crannies having to do with the issue of compensability. Injuries are compensable if they arise out of and in the course of employment. Sounds simple? Not so: Thousands of court challenges have occurred interpreting those few seemingly simple words. Is a worker covered while driving home from work? Is a worker covered while they take a break or go to lunch? Is a worker covered while running a personal errand during a business trip? Is a worker covered when injured at the company picnic? The answer to all these questions would be "maybe." Specific circumstances would dictate a yes or a no.

In the first Florida case, Galaida v. Autozone, Inc. 29 Fla. L. Weekly D2160d (Fla. 1st DCA Sept. 27, 2004), a worker was denied benefits for an injury sustained while on a smoke break in the company parking lot. Autozone allows employees to take smoke breaks, and the employee went to his car to get his cigarettes. When he opened the car door, his gun fell out of the car, discharged, and shot him in the foot. The claim for the resulting injury was denied not because it occurred during a break - that is an acceptable deviation for personal comfort - but because the employer had a policy against possessing firearms on company premises, and therefore, this incident was deemed a serious deviation from the course of employment.

The employee subsequently appealed the denial based on the doctrine of "personal comfort." The Appeals court upheld the denial, stating that:

The personal comfort doctrine incorporates a foreseeability element to the cause of injury. Thus, in Holly Hill Fruit Products 473 So. 2d 829, 830-1 (Fla. 1st DCA 1985), an employee who was injured while crossing a street to purchase cigarettes was held to have sustained a compensable injury because the 'trip was a foreseeable and non-prohibited refreshment break activity, and employer's authority over claimant was not significantly dissipated during the course of the trip.' Similarly, in B & B Cash Grocery Stores v. Wortman, 431 So. 2d 171, 174 (Fla. 1st DCA 1983), an employee injured while attending to his personal comfort by washing off in a river was held to have sustained a compensable injury because 'diving into the Alafia River was a momentary deviation without obvious danger, was impliedly tolerated, and was reasonably foreseeable.'

Being exposed to a firearm, however, is not a foreseeable consequence of an authorized cigarette break, especially when the possession of a firearm is strictly prohibited by the employer. Moreover, Galaida’s possession of a firearm, in violation of his employer’s policy, was not conducive to the employer’s interests. Thus, he should not benefit from the doctrine."

The second Florida case, Thompson v. Keller Foundations, Inc, 29 Fla. L. Weekly D2159a (Fla. 1st DCA Sept. 27, 2004.) dealt with a construction worker injured in an accident that occurred on a drive home from work after a stop in a bar to shoot pool with co-workers. This claim was denied, but the appeals court reversed the decision determining that the employee's injuries were indeed incidental to employment.

In this case, the worker was traveling for business. In most instances, travel to and from work is not compensable, but courts take a very inclusive approach in evaluating instances when an employee is traveling overnight for business. In reversing the lower court decision, the Appeals court stated:

"A traveling employee is deemed to be in the continuous conduct of his
employer's business including those times when he is not actually at work but is engaged in . . . normal and necessary activities. Thus, so long as a traveling employee’s injury arises out of a risk which is reasonably incidental to the conditions of employment, the injury will be compensable. Although the appellant may have been engaged in amusement activities immediately prior to the accident, the JCC did not make any findings sufficient to conclude that this traveling construction worker was not attending to a normal creature comfort and a reasonable necessity - driving to dinner - when his injuries were sustained."

There are a few lessons for employers that an employer can learn from these cases. One is to ensure that your organization has a policy about weapons. It makes good sense to have this be part of a more comprehensive "zero tolerance" policy regarding violence in general. Such a policy could address weapons, fighting, bullying, and other behaviors that risk the health and safety of your workers.

Second, be aware of the inclusive nature of overnight business travel in terms of compensability. Think twice about whether business travel is a necessity. It some instances, it may be the only way to get the work done; in others, there may be alternatives. For example, with advances in web technologies, an online conference might be a better solution from both a cost and a risk management perspective than an in-person meeting.

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October 12, 2004


Is the California Workers comp overhaul providing relief? Some don't think so. Injured workers still face lengthy delays in getting treatment and resolving insurance claims. The main reason is that the new legislation took effect before critical rules and guidelines could be developed to accompany it, according to The Sacramento Bee. Officials say the new rules will not be ready before Jan. 1.

Iowa lawsuit challenges workers compensation rules
"An injured Iowa worker has filed suit against the state, claiming that legislation containing new workers' compensation rules approved by lawmakers was constructed in a manner that violates the state's constitution.
Gertrude Godfrey of Sioux City claims in a petition filed in Polk County District Court that lawmakers unlawfully rolled the new workers' comp regulations into an economic development package along with several other provisions.
Her Des Moines attorney, Martin Ozga, said Godfrey, 63, suffered a lower back injury while working at a bakery thrift store and is seeking compensation.
The new rules, promoted by Republican lawmakers, limited an employee's ability to recover workers' compensation dollars when they have been injured on the job more than once."

Other reports state that this challenge could threaten a new $87 million business tax break as well.

Illinois panel to study Hispanic immigrant work-related deaths
Kudos to Gov. Rod Blagojevich for appointing a panel to study the high rate of work-related deaths among Hispanic immigrants and to identify ways to lower the risk. We hope other states will follow suit.
"Blagojevich said two potential improvements would be to tighten health and safety requirements in the state's day laborer law, and to increase bilingual worker training. Last year, of the 5,559 work-related deaths recorded nationwide by the federal Labor Department, 72 percent of the victims were whites, 14 percent Hispanics, 10 percent blacks, 3 percent Asians, and the rest were of other races or ethnicities."

Nevada - Decrease proposed for workers' compensation insurance rate
"State Insurance Commissioner Alice Molasky-Arman says she will make a decision in about one month on a recommendation to lower by 6.5 percent the average rate paid by businesses for workers' compensation policies. She said this was the second straight year the National Council on Compensation Insurance has suggested a rate reduction.
But Dick Rottman, owner of a Reno insurance company and former state insurance commissioner, said he couldn't understand how that national group is calling for a rate decrease in industrial insurance rates.
Rottman said there are double-digit increases in medical costs. And the 2003 Legislature changed the permanent partial disability law and in some cases the cost for injured workers has risen 15 percent to 20 percent."

Oregon - No workers' comp rate increase in 2005, Kulongoski says
Governor Ted Kulongoski recently said Oregon workers' compensation insurance rates will not increase in 2005, and noted this was the third straight year without an increase following 12 consecutive years of rate reductions that began with a major reform in 1990 that has saved Oregon businesses a total of about $10.1 billion.
Critics said rates could be even lower if voters approve a ballot measure in November that would abolish SAIF Corp., the state-owned workers' compensation insurer, and leave the market to private companies.
There "are other states where measures like this have passed and rates have gone down," said Lisa Gilliam, spokeswoman for Oregonians for Accountability, a campaign to eliminate SAIF funded by Liberty Northwest, a subsidiary of Boston-based insurance giant Liberty Mutual.

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October 10, 2004


There is an interesting convergence of issues concerning the pain killer, Oxycontin. Originally developed to combat cancer pain, Oxycontin has been aggressively marketed over the past three years by its manufacturer Purdue, to the point where the drug is now the pain-killer of preference for work related injuries. This drug is twice as powerful as morphine and, while not technically addicting, it can create withdrawal symptoms when a person stops taking it. According to a study by NCCI, Oxycontin is prescribed for pain in 69% of permanent partial disability cases. This same study also points out that 49% of these prescriptions go to people with back injuries. When you combine that with the next interesting piece of data – Oxycontin is almost always dispensed in 50 day supplies (100 tablets) -- you have a potentially volatile mix.

Most back pain resolves itself in a few weeks, especially where employers are able to keep injured workers productive through the use of temporary modified duty. But if employers cannot accommodate the injury, if the injured worker is inactive, sitting at home and thinking mostly about the pain, it is probably natural for the worker to seek more relief – and natural for the doctor to grant it in the form of a strong medication. This may be a case where the miracle drug is producing something less than a miracle in at least some of the lives of the people taking it.

There are a lot of problems associated with this particular drug. The Government Accounting Office recently issued an alert on Oxycontin. The GAO criticized the marketing program undertaken by Purdue. There has been much publicity about drug store robberies seeking this particular drug – many pharmacies now will not stock it. Street users have learned (via the manufacturer’s warnings!) to crush the drug, thereby getting an enhanced “high.”

So here is perhaps the full circle of trouble: the standard prescription puts 100 pills into the hands of the injured worker. That’s a lot of pills, especially if the pain resolves itself sooner rather than later. What happens to the extra pills? They could be a very valuable commodity on the street. Conversely, if the worker does not get better, if he or she sits inactive at home and runs through the 50 day supply, there is a strong chance of becoming dependent upon the drug and seeking a refill. That puts the injured worker on the slippery slope to permanent disability. The back pain can evolve from a temporary condition to a more or less permanent dependency on this powerful medication.

The possible over-and/or mis-prescribing of this particular drug are alarming. To be sure, there are no easy answers here. We will keep you posted.

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October 6, 2004


George's Employment Blawg (which, incidentally, is always a good read) treats the legal downside of incentive-based compensation, pointing us to an article by Chiree McCain of the Birmingham Business Journal entitled Compensation systems also have legal negatives

The article uses examples of bonuses that may inadvertently encourage drivers to short-shrift safety or drive beyond legal limits and bonuses for accident-free days that may impede accident reporting. While the article doesn't discuss piecework, we'd put that in the category of a compensation system that often leads to safety problems. It certainly wreaked ergonomic havoc in the textile industry, although today, with much of that industry being outsourced offshore, injuries are probably less in evidence here in the U.S.

In most instances, incentives are intended to be a positive force, motivating employees to excellence but they can be a fertile playing ground for the law of unintended consequences, bringing to mind the age-old saw about the road to hell being paved with good intentions. We've certainly seen bonuses for accident-free days backfire, particularly because they are often awarded to a group of workers or a manufacturing division so you have the carrot of financial gain AND the stick of peer pressure at play.

The article suggests possible initeneded consequences of incentive-based compensation:

"They're [the employer] not saying, 'I'll give you extra money if you go break the law' ... but the company can face liability for the conduct that is illegal," he says.

Gittes says employers could face liability for on-duty actions by an employee or an independent contractor because, either way, that person is acting as an agent for the company.

And if a plaintiff can identify a pattern of accidents or illegal behavior, a compensation system that encourages that behavior might raise the stakes from negligence to deliberate disregard and therefore introduce punitive damages into the mix.

"If they were put on notice that their policy was being interpreted by employees in ways that threatened the safety of others and they continued to do it anyway, there could be an issue about punitive damages," Gittes says.

The downside can be costly. In January, we reported on a $12 million lawsuit based on bad faith for a claims handling practice allegedly involving incentives to claims staff for lowering the cost of claims – ouch.

In relation to bonuses for accident-free days, George offers the sensible advice that bonuses could be "coupled with training on legal reporting obligations and strict disciplinary enforcement of failure to report even relatively minor accidents. " We often recommend that employers build safety goals and expectations into job descriptions at all level of an organization so safety becomes an integral part of everyone's job.

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October 5, 2004


Are you a researcher with an interest in workers compensation? If so, you may want to submit an application to the John Jones Scholar in Workers’ Compensation Research by February 1, 2005 for a $10,000 research grant. This award was created by the Workers' Compensation Research Institute’s (WCRI) Board of Directors to recognize the many contributions of John Jones, one of the founders of WCRI. The objective of the grant is to stimulate interest in workers’ compensation research and facilitate creation of important, new, publishable research. Topic areas of interest for potential research include medical treatment guidelines, return to work, benefit adequacy and equity, reducing litigation, and evaluating the design of PPD systems. For more information, contact: Linda Carrubba at 617-661-9274, ext. 245 or lcarrubba@wcrinet.org

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October 4, 2004


[We are pleased to welcome as a guest blogger today our favorite actuary, Don Bashline of Bashline & Associates, based in Watertown, MA. Don has some interesting thoughts on the federal government's new regulations pertaining to overtime, which have a direct impact on workers compensation.]

On August 23, 2004, the U.S. Department of Labor's new regulations defining worker eligibility for overtime pay went into effect. In a possible attempt at subliminal spin, the program is called "Fairpay." Let's say it's "fair" for some and not so fair for others. For a critical view of the regs, see the white paper at the Economic Policy Institute. Although the net effect of the new regulations won't be totally clear for a while, no one disputes that some low-wage workers (earning less than $23,660 per year) will gain overtime protection, while many others will lose it. Among the apparent losers: sous chefs, childcare workers and a very large number of supervisors...

The regulations are complex and employers will have some flexibility in implementing them. There have already been cases where employers have given raises (good news?) to employees near the $23,660 threshold, resulting in those workers losing eligibility for overtime (bad news!). Others have chosen to preserve overtime eligibility for workers in high-demand occupations (for example, nurses) that theoretically could have been exempted under the new regulations.

What does this mean for workers compensation? The net effect of the new regulations is to lower the wages of many workers. This will impact workers compensation in two ways: First, overtime wages are included in the calculation of an injured worker's average weekly wage. With changes in eligibility for overtime, average weekly wages for many workers will decline. As a result, the weekly workers comp indemnity payments for these "exempt" injured workers will also decline.

In addition, these changes will impact workers compensation premiums, which are calculated based on a rate per $100 of payroll. With payrolls declining due to the new regulations, insurance premiums will also decline. Insurers, particularly those who have a high percentage of premiums in affected classifications, will need to think about calculating the estimated impact of these changes on both premium income and claim costs. Employers, especially those who are self-insured, might also need to assess the impact of the new rules on their projected workers compensation costs.

The impact of these new regulations on workers comp calls for careful scrutiny in the coming months. LynchRyan will keep you posted.

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