March 16, 2005

Fixing Workers Comp

A news round up reveals a number of states trying to fix problems in workers compensation. Not surprisingly, two of the highest cost states are trying to take action: Texas and Alaska. In any reform effort, the fault lines in the comp system are exposed. Reform always entails an attempt to control costs. When you control costs, some one loses: it might be doctors; it might be insurers; it may well be attorneys, but it is almost always injured employees. We think that reform can make winners of everyone, but first let's have a look at the news.

In Texas, second only to California for costs, half of the employers opt out of the workers compensation system. This means they prefer the “frontier justice” of the pre-workers compensation world: injured employees sue employers for benefits. Meanwhile, Texas is looking into the establishment of managed care networks as a means of attracting doctors into the workers compensation system. That’s all well and good, but until and unless Texas creates a relentless focus on the importance of returning injured employees to their jobs, costs there will remain out of control.

In Alaska, costs have been increasing, especially in the medical area. Greg O'Claray, commissioner of the Alaska Department of Labor and Workforce Development, wants to change the law to establish rate setting for medical treatment. He would also like to see faster resolution of disputed claims. I imagine that the vast distances in Alaska create a unique set of problems for the workers compensation system.

In Missouri, (Kansas City Star, registration required) reform efforts are focusing on a number of interesting issues. They want to raise the standard for injuries that qualify for compensation from the current “substantial factor” to “prevailing factor.” In other words, work must be the predominant cause of the injury. (This reminds me of the frequently debated standards for stress claims. At one point, California required that only 10% of stress had to be work related for an employee to collect workers comp!)
In addition, the current law enables employees who are in company cars to collect comp for injuries going to and coming from work. This needs to be changed. Compensability should not hinge on a fringe benefit – in this case, operating a company vehicle.
Finally, Missouri would cut benefits anywhere from 25 to 50% if an employee’s injury stems from a failure to use company-provided safety equipment. This would be a mistake. Comp is and needs to remain “no fault.” If, on the other hand, the injury reaches the standard of “willful intent” on the part of the employee, the benefits should be terminated.
The Missouri Chamber of Commerce is happy about the reforms, which includes attempts to curtail attorney involvement and the power of administrative law judges. Given the Chamber's backing, it's safe to assume that the legislation is focused on narrowing compensibility and benefits.

Over in another part of the world, we read that the usually innovative Work Cover Authority in New South Wales, Australia, wants to set a new and rather frightening standard for workplace deaths: under proposed changes in the law, the employer is presumed to be negligent for any workplace fatality and is subject to fines of up to $1.5m and up to 5 years in jail. While I am all for holding employers accountable, a presumption of guilt – if that in fact is what this is – creates a very punitive standard which might have a chilling effect on hiring. There must be a better way to establish employer accountability. (It’s worth noting that the criminal standard for employer accountability may well be reached in Rhode Island’s Station Nightclub fire, where 100 people died.)

The LynchRyan Perspective on Reform
Workers compensation legislation is a process. It tends to follow the swing of a pendulum. Over the past decade, the pendulum has swung pretty much in the employer’s favor, with the goal of reducing the overall costs of the program. In states where costs are still out of control, legislative tinkering usually focuses on cutting benefits and tightening controls. At LynchRyan, we counsel states to keep their eyes on the fundamental goal: provide incentives for employers to establish safe workplaces and return injured employees to productive employment as soon as possible. We discourage states from cutting benefits, because that is not usually where the true problems lie. Costs run out of control not because too many benefits are paid to injured workers, but because the entire system is too slow in returning these injured workers to productive employment.



Workers' compensation jurisdictions such as California also have begun to recognize and take actions that incentivize insurers and other claim payers to improve claims related business processes. The California Commission on Health and Safety and Workers' Compensation (CHSWC) for example released a report in July 2004 [] which identifed 5-year sytem savings of $2.8 billion achievable by migrating payments to electronic benefits transfer mechanisms. Analysis based on standard NACHA comparisons between paper check disbursement workflow and electronic funds transfer (EFT) show per transaction direct savings of $2.50. A claim payer disbursing 3,000 checks per month will save $142,500 annually in loss adjustment expense. A large payer with 3,000 payments daily will save $2.85 million against unallocated loss adjustment expense annually. These are interesting numbers, and point to the fact that back office infrastructure modernization is a sure-fire strategy to improve systemic performance without the considerable business and social frictions associated with downsizing benefits, erecting access barriers and -- legitimate cuttailment of fraud and abuse notwithstanding -- creating inequities that simply serve to drive injury costs into other safety net systems. BPI initiatives such as payment automation can provide considerable help in driving waste and inefficiency out of workers' compensation, and insurers that are not making the effort to improve their internal processing due a disservice not only to their own results but also to policyholders whose premiums reflect the cost of claim payers' obsolete processing systems.

It seems that most talk of worers comp. and the failing system tends to only address financial issues and the need to level out the proffit/loss ratio for the insurers. I have found little attention being payed to the devistating effect on the lives of the real victims in this mess, the injured workers.California's State Fund Insurance is said to be a "state run program" yet they answer only to their own private investors. Each year they argugue in the state capitol over ways to cut cost for the insurers as well as the employers, yet State Fund posts $millions in anual net proffits which are passed on to stockholders. Meanwhile, perfectly innocent people, suffering from work related injuries are left unknowing and unprotected by the very source from which they are supposed to be protected by. The idea is to provide necessary medical treatment and temporary financial assistance to injured workers. The suppossed goal is to provide adequate recouperative rehabilitation and lost wage compensation until such time that the injured worker is able to return to their position in the work force or, if unable to effectively regain full reinstatement to provide job retraining rehabilitation. The truth is quite diferent however. Any counselor with the workers comp. information and assistance hotline can tell you that the two most frequent complaints by injured workers seeking help are #1- it is beyond impossible to reach, let alone get answers from any adjusters. Quite simply, claimants are ignorred for as long as possible and treatment is delayed while financial assistance is withheld (sometimes for years) with no penalties to the insurers and no one watchdogging for misconduct. This practice forces desperate injured workers to obtain legal council which really only gets you the absolute bare minimum assistance. W.C attorneys have no motivation to expedite action from the insurers. Instead they are apathetic to the needs of clients and are carefull to never "rock the boat" with the insurers. This brings up issue #2- claimants spend weeks or months trying in vane to contact their attorneys and their repeated attempts do nothing to garner even a simple return phone call or e-mail. So realy, claimants are alone, even with legal assistance in their corner. W.C. attorneys make the same percentage of your claim whether your case settles in 6 months or in 6 years and they are hessitant to ruffle any feathers with insurers so that they can maintain agreeable terms of a working relationship. In effect - lawyers are buisness partners with the insurers, scratching each others back while the almighty dollar stays the focus and is more important than the injured worker. There are so many hands reaching into this pot that everyone is carefull to never cause problems for the other hands for fear of loosing their grip on their tiny piece of the prize. All the while, if they are lucky, the injured worers are shuffled through, and forgotten by the system. Instead of proper and timely care and assistance, injured workers are faced with neverending beurocracy as they get forced into poverty, loosing homes, destroying families and made destitute. Faced with these burdens, claimants are reduced to living in shame and suffering with no avenue to turn for protection. Where is the voice crying out for the injured? Is there ANY place to turn for shelter? Who stands up for the ethical treatment of these infirmed cast aways? Can't something be done to prevent the insurance agents from destroying so many lives in the hope that eventualy an injured worker will give up on their entitlement and save a few dollars for the insurers? Something MUST be done! please help me to be heard.

Big D, the insurance industry often does get caught up in the dollars and cents and forgets the human dimension of the issues at stake. We would agree that a work injury is first and foremost a human issue, but the business reality is that the financial impact will always be tallied too. We strongly believe that the best way to take care of the dollars and cents is to treat people fairly and well, and to focus on a) preventing injuries in the first place, and b) providing excellent medical care and return-to- work programs to support workers in their recovery. We believe that when you take care of the people issues, the money issues fall in line. Most of the employers we have worked with have saved far more by doing the right thing by their workers than they ever did by merely focusing on the dollars. That method is the tail wagging the dog.

(There is merit, too, in achieving system efficiencies such as those described by John Peters that can save money and improve the speed of benefit receipt for workers. We would endorse technologies that drive waste out of the system.)

Thank you for your lengthy comments, Big D. You raise some very good points and, hopefully, your viewpoint will be read and heard by some who work in the industry. The workers comp system can be extremely frustrating, confusing, and impersonal - and it can be a frightening experience for a worker who needs to be sure he or she has next week's rent or food for their kids while they recover from a work injury. That's why we encourage employers to advocate for their workers and to partner with them in their recovery. Except in the rarest of cases, workers who have legitimately been injured on the job should not need lawyers to get the benefits they are due.

But let's face facts, there are bad employers who do not focus on safety and who do not support workers who get injured. There are bad claims adjusters, too, and may well be insurance carriers that focus too much on the bottom line. In addition, if you follow the flow of money in your state of California, you will find that most of the money has not been going to injured workers, but into the pockets of some unscrupulous attorneys and doctors who have been taking advantage of a vulnerable system. In his article Good Grief! Does Our Future Lie in California?, Tom Lynch points out how workers and employers alike have been held hostage in the California system.


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This page contains a single entry by Jon Coppelman published on March 16, 2005 1:18 PM.

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