November 2006 Archives

November 30, 2006


"Is there a happier day of the bi-week than HWR Day? Not for us health wonks," says Michael Cannon at Cato@Liberty, who hosts a great issue of Health Wonk Review today. If you're interested in the cost of health care (and who isn't?), health care policy, or the latest buzz, check out the news from the blogosphere's elite health-care wonks.

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November 29, 2006


Judge Stanwood R. Duval Jr of the Federal District Court in New Orleans has opened the door to payments for homeowners whose homes were destroyed by Katrina. Or has he? We read in the New York Times that some insurers must pay for damage because the flooding in New Orleans was due to human error - specifically, the failure of man-made levees to hold back the water. Because most insurance policies do not specifically exclude "man-made" flood disasters, the judge has determined that the insurers must pay. On the other hand, he says that State Farm and the Hartford are off the hook because their policies do not provide coverage for flooding "regardless of cause."

While lawyers for the homeowners are calling this a major breakthrough, defense lawyers see it as a temporary set back. They are confident that the judge's parsing of the policy language will be overturned at the appeals court level.

"The judge reached the wrong conclusion," said Robert Hartwig, chief economist at the Insurance Information Institute. "The policies clearly exclude flood-related damage under any and all circumstances. We do not believe the decision will be upheld."

With over 200,000 homes and thousands of businesses damaged or destroyed by the flooding in New Orleans, there are billions at stake. Beyond that, the future of the city itself is uncertain, as billions in promised federal aid has failed to reach the people who need it.

Comp is Really Different
All of this litigation, the months and years of uncertainty for all parties involved, stand in stark contrast to the workers comp system. For those of us who deal with comp every day, we are reminded that comp is a no fault system that operates with generous parameters of compensability. If you are "in the course and scope of employment," if you are in fact someone's employee, your injury is likely to be compensable. Once a claim is reported to the carrier, the insurer usually has just a couple of weeks to determine compensability and start making payments. This standard can be difficult to meet and creates headaches for claims adjusters. But the great benefit is that it takes uncertainty off the table for injured workers and their families. They don't have to scrounge for food and shelter while their case wends its way through the courts.

We will follow the fate of New Orleans property owners with great interest. It will be fascinating to see if Judge Duval's ruling opens the floodgates to significant payments to home owners or just ends up being another judicial "distinction without a difference." The future of a city - and possibly that of the insurance industry - may well hang in the balance.

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November 28, 2006


Peter Gosselin, a staff writer for the LA Times, has written a provocative piece on the future of insurance. It's a must read for anyone interested in risk.

We all know that insurers want to sell insurance to people who are not likely to use it. In the rapidly disappearing "old days" of risk transfer, insurer actions were premised on the law of large numbers: if you sell relatively similar insurance policies to a large enough pool of insureds, the losses will be spread out. In effect, those less likely to file claims subsidize those more likely. Because rates up until recently have been pretty much the same for all, the coastal homeowner pays relatively less for insurance; the secure inland homeowner, less at risk, pays a relatively higher rate for insurance.

This is no longer the case. Insurers are backing away from coastal exposures. The price of insuring coastal homes goes up and up, limited only by the intervention of state regulators. Often, the state itself has to create a risk-bearing mechanism so that coastal homeowners can be covered. Meanwhile, property insurers, having identified what their actuaries have determined to be low risk prospects, go into their death spiral of cutting rates (and paying higher commissions to agents) to secure the business. They're no longer interested in big pools. They want to limit their writings to prime risks only. In effect, they are easing their way out of the risk transfer business.

The Hazards of Mining
We are already deep into the brave new world of data mining. Insurers can develop a much more specific and detailed profile of each risk. Armed with geographic, climactic, economic/credit history, education and other data, they isolate the factors that might indicate a direction toward filing a claim (bad risk) or never filing a claim (good risk). In the predatory world of insurance, this translates, of course, into highly favorable (discounted) rates for the good risks; and higher and higher costs for those identified as bad risks. State regulators look upon the increasingly sophisticated pricing models with alarm, because they know that lower and middle income people often bear the brunt of higher costs.

Not-So-Fine Print
Katrina opened the eyes of its victims to the fine print in insurance policies: water damage simply wasn't covered. Now property owners whose homes have been totally destroyed by any cause (fire, tornado, etc.) are confronting not-so-subtle changes in the wording of their insurance policies. No longer providing "guaranteed replacement cost" - ie., rebuilding the home as it was - insurers now offer "extended replacement cost" - which limits payments to a specific dollar amount. Homeowners who built in the 80's and 90's might assume that there is a built-in escalater clause to cover the higher cost of rebuilding in 2006. They are dead wrong. And I'd be very surprised if anyone has bothered to tell them about the changes.

The End of Insurance?
We may be seeing a fundamental change in the nature of insurance. Insurers have always been risk averse, but now they have the tools to limit their risks dramatically. As the concept of pooling evaporates, as insurers begin to slice and dice prospects into dozens, even hundreds, of categories, the number of losers is likely to exceed the winners. For one reason or another, a very large number of people who have been identified as "bad risks" will be faced with exponential hikes in the cost of insurance. (If health insurers try to base their pricing on genetics and family history, all hell will break lose!) Meanwhile, those identified as good risks will be able to choose among highly discounted products. Brand loyalty will disappear in the proverbial New York minute.

Peter Bernstein, author of the highly readable and entertaining Against the Gods: The Remarkable Story of Risk, thinks the new insurance strategies are doomed: "Insurers who look at each risk individually at the expense of broadly diversified pools are going to end up in the soup. Diversification, not flyspecking one risk at a time, is the insurers' optimal form of risk management."

We'll see. The insurance industry is undergoing a paradigm shift of enormous importance. The new model will probably generate some hefty profits, but the party may not last very long. There will be howls of protest from the millions who, for one reason or another, have been deemed to be "bad risks." Then the rhetoric will explode: "Bad risks of the world, Unite! You have nothing to lose but your (coverage) chains!"

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November 27, 2006


New York construction - Fatal construction accidents have risen sharply over last 12 months, according to an article by Sewell Chan in The New York Times:

Of the 28 incidents in which the 29 workers were killed, 19 involved companies with 10 or fewer workers and 21 involved workers who were immigrants or had limited English proficiency and 24 involved nonunionized workers.
Mr. Mendelson said that unionized workers were not immune from accidents, but had a better safety record. “There’s no reason why nonunion workers should have a lower level of protection,” he said. “Obviously there’s a disparity here.”
Thanks to rawblogXport for pointing us to this item.

Ask Dr J - Our friend and colleague Dr. Jennifer Christian discusses strategies for aligning incentives with physicians (PDF) in response to the reader query "We want to reward the doctors who are willing to work with us to help prevent needless disability. Any ideas on things we might try?".

Patient safety - Rita Schwab at MSSPNexus Blog posts about a recent Modern Healthcare article on patient safety, an issue that is coming under increasing scrutiny. She discusses how vital it is for the chief executive officer of a hospital to embrace and champion safety - and we would posit that this is true whether the topic is patient or worker safety. In any organization, the CEO sets the priorities. In her post, it is suggested that a portion of executive compensation be linked to measurable safety goals, and that violations of safety policies result in disciplinary action.

Ohio fraud watch - Rare coin dealer Thomas Noe will serve 18 years in jail for his theft of $13 million from The Ohio Bureau of Workers Compensation. Joe Paduda reports at Managed Care Matters.

CA case law - Roberto Ceniceros of Business Insurance reports on an Appeals Court ruling that awarded workers compensation benefits to a Home Depot worker for a psychiatric injury. In Aaron B. Matea vs. Workers’ Compensation Appeals Board, the court found that because the injury was caused by a "sudden and extraordinary employment condition" - a shelf-load of lumber falling on him - it met the exception rule to the requirement of 6-month employment.

Occupational injuries drop in 2005 - In another item from Roberto Ceniceros, we learn that the rate of nonfatal workplace injuries and illnesses in private industry that required recuperation away from work declined 4% in 2005, according to the Department of Labor’s Bureau of Labor Statistics. A PDF of the full report is available from the Bureau of Labor Statistics.

Firefighters and cancer risks - Katherine Torres of Occupational Hazards writes about research conducted by the University of Cincinnati that demonstrates that firefighters may be more likely to develop certain types of cancer than workers in other professions.

"According to findings published in the November edition of the Journal of Occupational and Environmental Medicine, Grace LeMasters, Ph.D., Ash Genaidy, Ph.D., and James Lockey, M.D., found that firefighters are twice as likely to develop testicular cancer and have significantly higher rates of non-Hodgkin's lymphoma and prostate cancer than non-firefighters. The researchers also confirmed previous findings that firefighters are at greater risk for multiple myeloma. The University of Cincinnati-led team looked at 32 previously published studies covering 110,000 firefighters – most of them full-time, white, male workers – to determine the comprehensive health effects and correlating cancer risks of their profession."

Dirty work - Diane Pfadenhauer 0f Strategic HR Lawyer refers us to an item in WebMD about the top 9 jobs where bacteria thrive, part of a larger research project by Gerba on "Germs in the Workplace." You may or may not want to find out if you are on the list.

In the "unusual worker risk" department - This page is dedicated to analysis of the extent and cause of the injuries suffered by Lord Darth Vader. In Return of the Jedi Obi-Wan Kenobi states that Vader is "more machine now than man." This page will be concerned with investigating the extent Kenobi's statement might be literally true and the extent to which it is merely "a certain point of view."

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November 22, 2006


Thanksgiving is upon us and our thoughts begin to drift away from the workplace, but a compelling article in the New York Times by health writer Gina Kolata brings us abruptly back to work. The article cites a new study, published in the Journal of the American Medical Association, that raises serious questions about the reliance on surgery for treating herniated discs. The basic findings are startling:

People with ruptured disks in their lower backs usually recover whether or not they have surgery. Surgery appeared to relieve pain more quickly (emphasis added) but most people recovered eventually and that there was no harm in waiting. Patients who had surgery often reported immediate relief. But by three to six months, patients in both groups reported marked improvement. Doctors once feared that waiting would aggravate the condition; this study shows that waiting does not have any negative effect on the eventual outcome.

Sciatica occurs when the soft gel-like material inside a spinal disk protrudes through the outer lining of the disk like a bubble on a bicycle tire. That compresses and inflames a nerve root that forms the sciatic nerve. Doctors often associate the condition with a traumatic incident - lifting - which often enough occurs at work, making the condition work-related. (The predisposition for sciatica may well be genetic - it tends to run in families. But given a work-related cause, comp will pay the bills.)

Ruptured discs are associated with excrutiating pain. (For a very personal perspective, see our posting from a year ago.) The pain can feel like a burning fork in the buttocks. Or it can be a searing pain down the back of a leg. It can be so intense that some people cannot walk. Some cannot sit. In my case, I could barely crawl.

Surgery is certainly a viable option. The operation is quick and generally effective. It involves gently pushing the compressed nerve root away from the herniated disk. Then the surgeon makes an incision in the disk and deflates it. The nerve returns to its normal position, the inflammation goes away, and the pain often disappears.

So in the world of workers comp, where ruptured discs are common, what should we do: perform surgery or wait it out?

The Comp Perspective on Pain
Ultimately, the choice of whether to have surgery is up to the injured employee. And this difficult decision comes down to two fundamental issues: pain and time. In our frequent postings on pharmacology, we note the abundant reliance on narcotics in the workers comp system. People naturally avoid pain and are quick to take medications that make them feel better - even though the medications themselves can have a debilitating impact on recovery.

Injured workers experiencing pain have to perform a difficult calculus: how long can I tolerate the pain? Is it worthwhile to risk surgery, to make the pain go away sooner? Is it worth the risk to stifle the pain through powerful medications, under the assumptions that (1) the pain will eventually go away and (2) I will not develop any problems with the medications themselves?

The Comp Perspective on Time
Then there is the time issue: in the comp system, injured workers get paid to wait. They collect indemnity (usually 2/3 of their average weekly wage, tax free) for the duration of the period where they are unable to work. (We can assume that few workers with severe back pain will be able to take on a modified duty job at work.) So avoiding surgery might actually prolong the time away from work.

There is one other important factor involving time: during a prolonged period of disability - during the wait to get better - injured workers can get used to the idea of being paid not to work. Indeed, indemnity appears to offer a perverse incentive: as long as the pain lasts, I get paid not to work. As soon as the pain goes away, indemnity checks stop and I have to go back to work. For people who don't love their jobs (or their supervisors), the seduction of the indemnity check can be very powerful.

Cost Benefit Analysis
The researchers involved in this study are not concerned about workers comp. Nonetheless, they are interested in the cost effectiveness of surgery compared with waiting. Although the complete analysis has not been published, Dr. Anna N. A. Tosteson of Dartmouth, an author of the study, said that Medicare paid a total of $5,425 for the operation and that private insurers might pay three to four times that. But that's just the cost of surgery. What about the impact of indemnity? For an average worker receiving an indemnity check of $600 a week, $10,000 (estimated cost of the surgery) equates to four months of indemnity.

So from a policy perspective, should insurance carriers start to push back from the surgery option? I don't think so. Given the risk of prolonged disability when people are being paid not to work, given the heavy reliance on narcotics for dealing with pain in the comp system, surgery might still be the preferred option. In comp, time is of the essence. Because surgery speeds the return to work, it might well be the preferred path to recovery.

Talking Turkey
Enough talk about back injuries. Let's talk real turkeys instead. Here's wishing all our readers a wonderful and safe holiday.

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November 20, 2006


A couple of recent stories in the news highlight the problem that never seems to go away, the status of independent contractors. One story deals with union in-roads at FedEx, the giant delivery company. In the other story, the pervasive use of "independent contractors" (often undocumented workers) in construction keeps the cost of building down and keeps the profits high. Misclassifying people as "independent contractors" is a problem that is not about to go away anytime soon.

The Duck Begins to Quack
Let's begin with FedEx. (And no, we are not referring to Kevin Federline, tossed out by bride Brittany Spears, and now referred to as "FedEx.") A number of times, the Insider has blogged the FedEx strategy of calling their drivers "independent contractors." The drivers wear FedEx uniforms. They drive (leased) trucks with the FedEx logo. But the company stands by its assertion that they are not FedEx employees.

After 20 years of failures, the Teamsters appear to have won an election in Wilmington MA, where drivers voted 24 to 8 to affiliate with the union. (Previously they had lost 44 out of 46 votes.) The election was held on October 20, but votes could not be counted until the National Relations Labor Board (NLRB) determined that the drivers were indeed employees of the FedEx ground unit and not, as the company contends, independent contractors. Needless to add, FedEx is appealing. They believe that the union employed "unfair tactics" in the election.

Sean O'Brien, Local 25 president, said "we've finally infliltrated FedEx with a solid victory. Now it's a matter of getting a strong contract...We think this will inspire other locations around the country."
NOTE: In the interests of balance, the Insider is compelled to point out that Mr. O'Brien himself is not without controversy. His father, Billy O’Brien, used to head the Teamster's local movie unit when it was the target of federal probes earlier this decade over allegations of shakedowns and physical threats against movie-set employees in Boston. Nonetheless, Mr. O'Brien claims that his organizers did everything "by the book." (We will not attempt to figure out which book he is referring to...)

In the final analysis, the status of FedEx drivers will not be a matter of driver choice, of union vs. non-union, but a matter of interpretation of labor law. Bob Bedford, deputy regional attorney at the Boston NLRB, has concluded that FedEx asserts substantial control over the drivers and over the way they perform their jobs. The drivers work to FedEx schedules and follow FedEx driving and delivery guidelines. They walk like ducks. They quack like ducks. Eventually, once their many appeals have been exhausted, FedEx will have to accept the fact that their "independent contractor" drivers are really employees. And as far as the Insider is concerned, that will be just ducky.

Undocumented = Independent?
Robert Knox writes in the Boston Globe about the wide-spread tendency in the construction industry to avoid safety and insurance requirements by misclassifying undocumented workers as "independent contractors." This may be news, but it's certainly not new. There are a lot of incentives for calling workers "independent." It's a lot cheaper. You pay them less; you pay them in cash. You can hire undocumented workers who would otherwise fail to meet basic employment standards. You can avoid safety requirements mandated for regular employees. You don't have to pay benefits. You don't have to pay taxes (neither, for that matter, does the employee).

Why would a GC allow subs to function this way? Because it lowers the cost of doing business, which in turn leads directly to higher profits. For the most part, despite some efforts to tighten accountability for GCs, there are usually few if any consequences for tolerating undocumented workers on the jobsite.

Knox quotes a 2004 study by researchers at the University of Massachusetts and Harvard University, which concluded that one in every seven construction workers was misclassified as an independent contractor. The researchers estimated that the illegal practice costs the state $7 million a year in worker's compensation premiums, $4 million a year in payroll taxes, and $4 million a year in unemployment insurance payments. Specialists say the costs to taxpayers have continued to climb.

When you think about it, there are really very few true "independent contractors" in the workforce. Most of us seem to be under the control and direction of someone else. There are two major obstacles to owning up to this employer responsibility: money and accountability. It's cheaper and it's a lot easier to wash your hands of the employer's many responsibilities and expenses. We all benefit financially from the dubious practice of calling employees "independent contractors." For that reason alone, it's going to take a long, long time to fix the problem, if indeed, we have the collective willpower to fix it at all.

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November 16, 2006


David Williams of Health Business Blog has just posted the latest edition of Health Wonk Review, and he's produced a nice juicy issue - just in time for you to savor with your morning coffee!

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November 14, 2006


As part of our effort to keep readers informed of the latest management trends in the workplace, the Insider focuses today on contemporary acronyms: an update of the latest compressed nuggets that are finding their way into common speech. Well, not so common, perhaps. We begin with the admirable work of Megan Aemmer at MSN, who offers the latest in acro-speak making the office rounds:

1. A2O (Apples to Oranges): A comparison of dissimilar things; an inappropriate comparison. "I think we should ignore Smith's suggestion; the analysis is totally A2O."

2. B2B (Business to Business): Marketing-speak for a business supplying another business, as opposed to consumers or government. "They're strictly B2B, so you won't find their products in retail stores."

3. BHNC (Big Hat, No Cattle): Adapted from cowboy parlance. Used to describe someone who is all talk and no action, full of self-importance, and/or a poser. "She brags about her 'fabulous' job all the time, but she's BHNC."

4. CLM (Career-Limiting Move): A move that blocks your career path, or gets you fired, as in: "Wow, he made a real CLM when he showed up an hour late for the big pitch meeting."

5. CTD (Circling the Drain): Something that is on its last breath and about to die. Possibly related to disposing of a dead pet goldfish or a similar flushing-something-down-the-toilet scenario. "We all know the project is CTD, so most of us have started looking for new jobs."

6. FUD (Fear, Uncertainty, Doubt): A marketing tactic used by companies (often computer-related), FUD is used to scare consumers into staying with their product instead of trying the competitor's new product. "You could go with Company B, but their servers might crash on you."

7. MEGO (My Eyes Glazed Over): A sign of extreme boredom. "I had a serious case of MEGO after that accounting presentation."

8. PEBCAK (Problem Exists Between Chair and Keyboard): Tech-speak used when the "problem" is within hearing range. "I took a look at her machine and it's clearly a PEBCAK situation," said one technician to the other.

9. PURE (Previously Undiscovered Recruiting Error): A new employee who isn't working out as well as expected; an employee who looked good on paper but isn't cutting it on the job. "The new assistant buyer is definitely a PURE. Her qualifications are stellar, but she's so rude!"

10. WIIFM (What's In It for Me?): A key question in communication. People aren't going to be interested in hearing your pitch if they can't see what's in it for them. "Jones completely failed to sell the new PR campaign. The client just didn't see the WIIFM factor in his pitch."

Acronyms have been around at least since the 1940s. First and foremost in the creation of these curious and often annoying devices is the government, and more specifically, the military. Here are a few choice items:

EDAC: Error Detection and Correction. Or Economic Defense Advisory Committee. Or Equipment Distribution and Conditions Report. [Take your pick.]

PA: There are 41 possible meanings here, ranging from pad abort to proponent agency.

MA: From Military Advisor to Mission Abort, you have 17 options here (including, of course, the Insider's home state).

LEMUF: Limit of Error on Material Unaccounted For. [As awkward as this formation appears, there is ample opportunity to use it in Iraq.]

Before we put this topic to rest, check out the link to medical acronyms in yesterday's blog by our colleague Julie Ferguson. A couple of examples: LOBNH - Lights On But Nobody Home. Or how about two acronyms for parents: HIVI - Husband Is Village Idiot; HMF - Hysterical Mother Figure. A lot of these acronyms are pretty outrageous, not to mention, obscene, sexist, agist and racist. Unlike the military acronyms, these are intended to be humorous.

Meanwhile, we''d best sign off, before your blogger turns PEBCAK and begins CTDing. We don't want our valued readers to go MEGO. After all, we're all about B2B and we can't afford to have you look PURE or stumble onto a CLM so early in the work week!

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November 13, 2006


Blog smorgasbord - Cavalcade of Risk #12 is posted by Christopher Parks at MedBillManager Blog.

What makes for good outcomes? - Joe Paduda talks about what he learned about outcomes at the Workers Comp Research Institutes's (WCRI) recent annual meeting: "The net is this - states with high medical costs tended to have pretty poor outcomes, defined as longer absences from work and fewer injured workers getting back to their jobs, and low cost states tended to have much better outcomes."

The weekly toll - Tammy at Confined Space chronicles death in the American workplace.

PA reform - Roberto Ceniceros of Business Insurance informs us that last week Pennsylvania enacted workers comp reforms, including the creation of an uninsured employers guarantee fund and added measures designed to reduce litigation, such as caps on attorney fees in negotiated settlements and mandatory mediation conferences as part of any trial schedule. Here's more from the Philadelphia Business Journal

Bullies - Workplace Prof Blog discusses a recent study about bullies in the workplace.

The cost of obesity - Actuary,net points us to an interesting post and discussion: Should fat people pay higher insurance premiums?. And on a related theme, Bill Danylik at HR Web Cafe tells us why help for your out-of-shape workers may be cheaper than you think.

New York construction risks - New York City's construction zone nightmare - a New York Daily News article: "Between 2001 and 2005, OSHA investigated 68 "catastrophic accidents" citywide, meaning at least one worker died or three were seriously injured. Because the vast majority of mishaps occur on nonunion jobs involving immigrant laborers, numerous additional cases are believed to go unreported." (via rawblogXport).

Just for fun - Every profession has its jargon and slang - this compilation of doctor's slang. medical slang, and medical acronymns is rather amusing.

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November 10, 2006


Early this year, a tragedy played out in headlines as a dozen miners were trapped in the Sago mines. The nation kept vigil with families waiting for possible word of rescue, and the nation wept reading the poignant notes that the workers scrawled to family members in the last minutes before they died.

Bud MorrisThree days before this, 29-year old father of two Bud Morris lay bleeding to death beside his amputated leg in H&D Mining’s Mine No. 3 in Harlan County, Ky. Two of the mine's medical technicians were with him, but neither applied a tourniquet. They had not been trained in how to do this, despite amputations being a relatively common injury.

His story and many others appear in a special report on coal mine safety by Ken Ward Jr. of the Charleston Gazette, the first in an a series of planned reports. Ward reminds us that while the group deaths make the headlines, most miners quietly die alone, "crushed by heavy equipment, ground up by runaway machinery, buried beneath collapsed mine roofs." By examining some of these deaths and putting a human face on them, Ward graphically demonstrates that their stories are no less unsettling and the tragedies no less moving for their singularity.

Reading the details about how coal miners die is gruesome reading, but these are stories that cry out to be told and Ward seems just the person to carry the message. His painstaking work combing through Mine Safety and Health Administration data and other records reveal highly troubling facts:

  • Nine of every 10 fatal coal-mining accidents in the last decade could have been avoided if existing regulations had been followed.
  • Mine operators were faulted for not performing — or incorrectly performing — required safety checks in nearly one-fourth of the mining deaths between 1996 and 2005.
  • More than one-quarter of the fatal accidents involved mining equipment that operators had not maintained in safe working condition.
  • Mine operators violated roof control, mine ventilation or other required safety plans in 21 percent of the coal-mining deaths examined.
  • Mine managers did not train or provided inadequate training to miners in more than 20 percent of those accidents.
  • If all 320 miners’ deaths (from 1996 to 2005) are counted, the median fine so far paid by coal operators is $250 per death.

Many mine safety experts say that with coal prices high, safety is secondary to production right now. Most experts agree that the deaths occur because regulations and laws are not being followed or enforced. One safety activist calls coal mining "an outlaw industry," and it's hard to argue with that assessment when reading this report.

We learned of this report from Jordan Barab, who tells us that this week marked the death of the 45th coal miner, the fourth death in the last three weeks. If you read Workers Comp Insider regularly, you know that we link to Jordan's blog frequently because he tells the stories that otherwise might go unnoticed. This week, he is hopeful as he presents his checklist of safety priorities for a new Congress.

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November 8, 2006


Cover-All, Inc, bills itself as the nation’s largest full service flooring installation and refinishing contractor. They have over 1,500 employees in 30 states. Here's how they describe themselves: We're the people who install floors for Home Depot in 17 states. The Home Depot utilizes Cover-All's residential installation services for all trades exclusively in over 300 stores across the country. Our customers, like Carpet One, JPS Surface Solutions, the Home Depot and so many others understand the value of partnering with Cover-All. They realize the relationship can provide an opportunity to grow their business beyond the barriers of their previously limited labor capabilities.

Here's how Deputy District Attorney Michael Gara describes them: they're crooks. Three of the company's owners have been indicted for felony fraud and conspiracy. The charges each bring a maximum sentence of five years in jail. The owners are currently under $100,000 bail.

The indictment claims that Cover-All Inc. underreported their payroll to the State Compensation Insurance Fund by nearly $32 million between September 2001 and April 2006, saving the company $10.98 million in premiums. That's a lot of payroll and a lot of premium. If you do the math, here's what you find:
: On average, they avoided comp premiums on over a hundred employees per year for five years
: They avoided about $2m per year in premiums

The scheme was uncovered when insurance fund auditors noticed the company's reported payroll under its workers' compensation insurance policy differed from what the company was reporting to the state's Employment Development Department, which collects payroll taxes and administers unemployment benefits.
[Sidebar note: With millions in annual comp premium, Cover-All must have been audited each year. Did they have two sets of books, one for workers comp and one for unemployment insurance? How did they manage to get away with the fraud for five full years?]

Why take the chance?
Why would a reputable and growing company take this kind of risk? Keep in mind that this alleged fraud occurred during the period when California had the highest rates (by far) for workers comp insurance in the nation. Based on the above numbers, and assuming that the premium calculation involved the two basic class codes for carpet and tile installers (Scopes classes #5478 & 5348), we estimate the manual rate for installers in California at about $30 per $100 of payroll. That is three to four times higher than the rates you typically find in other states. Is it far fetched to imagine the frustration of Cover-All's owners, paying so much more for workers' comp in California than they were paying in all the other states where they operated? Did they, as a result, hatch a simplistic plan to under-report the payroll, thereby achieving a level of premium relief unavailable to other employers in the state?

If you review the Cover-All website, you see a number of good things. They appear to hire installers as employees (as opposed to calling them "independent contractors"). They have a robust benefit package, including health and dental, 401K and other goodies. They have forged a partnership with one of the country's largest home improvement retailers. They appear to be well on their way to achieving their goal of becoming the nation's largest flooring service.

So why risk it all in a rather primitive scheme to avoid insurance premiums? We may never know the answer. But I suspect that the sheer outrage of the cost of comp in California drove them over the edge. It's ironic that the indictment comes at a time when California has finally achieved meaningful reform of their comp system. Insurance rates have come down dramatically and are likely to continue to do so. Unfortunately for Cover-All, the owners's view of the emerging good times may soon be obscurred by some inconveniently placed iron bars.

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November 6, 2006


Here’s a question for you: If you were to ask any employer in America how his or her workers’ compensation costs compare to similar employers in other states, what do you think the answer would be? Well, I’ve been doing that with employers I meet for a long time, and I have yet to meet one who thinks his or her costs are lower than those of employers in other states.

Moreover, if you expand the question to inquire about employee benefits, most employers will venture that indemnity benefits paid in other states are most likely lower than what’s doled out in theirs.

It’s the old, “The grass is always greener” thing. But is it really, and how would you know? And here’s one last question: Suppose those employers really wanted to know the comparative cost and benefit data for their state and decided to ask a room full of insurance professionals about it. What do you think the insurance professionals would say?

For many years, we at Lynch Ryan have tracked research reports from three highly credible organizations that produce state rankings of workers’ compensation costs and benefits, one a private actuarial firm, another an Oregonian governmental entity and the third a non-profit, Washington, DC, foundation.

Actuarial & Technical Solutions, Inc, an actuarial consulting firm located in Ronkonkoma, NY, has been publishing state cost and benefit data annually since 1992. Its 2006 report, Workers’ Compensation State Rankings – Manufacturing Industry Costs and Statutory Benefit Provisions, has been released within the last month.

The Oregon Department of Consumer & Business Services publishes comparative cost data every two even-numbered years. Oregon’s 2006 Workers’ Compensation Premium Rate Ranking Summary Report was released this past Friday, 4 November 2006 (the complete report won’t be published for another two to three months).

And the National Foundation for Unemployment Compensation and Workers’ Compensation (UWC), headquartered in Washington, DC, has, since 1984, published annual, and class specific, comparative state data in a report titled, Fiscal Data for State Workers’ Compensation Systems. In this report. you’ll find annual data and total indemnity and medical benefit payments over the last 12 years.

The UWC has also published a Research Bulletin called, State Workers’ Compensation Legislation and Related Changes Adopted in 2005. Perusing that somewhat eye-glazing, 77 page report offers up such tidbits as Maryland’s House Bill 461, which “Applies workers’ compensation occupational disease presumptions to Montgomery County correctional officers who suffer from heart disease or hypertension (my italics) resulting in partial or total disability or death,” effective 1 October 2005. Wow!

The Oregon reports are free; Actuarial & Technical Solutions charges $105 for a single report, and the UWC reports costs $25 for those who are not members of the Foundation ($20 for those who are).

The first thing you need to know about the three comparative cost reports is that, while they use different methodologies, they all pretty much arrive at the same place. For the most part their rankings are in general agreement. One state may be ranked #5 in one report and #7 in another. Personally, that’s close enough for me.

All three reports contain some rankings that appear predictable, but there are surprises and paradoxes, too. For example, notwithstanding changes to its law, most workers’ compensation professionals would expect California to be at or near the top of the cost rankings, and they’d be right. But who knew that my home state, Massachusetts, which so many of my conservative friends continue to call Taxachusetts, would rank way down at the bottom, either 43rd or 47th, depending on whose report you read? That’s a surprise, and here’s a paradox: Despite ranking as the least costly of the major industrial states in which to buy workers’ compensation, Massachusetts provides higher benefits than any other state except Nevada, which ranks in the middle of the pack in terms of cost.

We have found the data mined from these reports, as well as others, invaluable as we consult to employers and insurers around America. Searching out and understanding this research, and doing our own, as well, allows us to put costs and benefits in perspective and is very helpful in designing reasonable and achievable cost reduction targets for our clients.

I urge the workers’ compensation professionals among our readers to get and read the reports. It’s time well spent. If you’d rather not do that, but have some questions about them, you can email us at communicationsATworkerscompinsiderDOTcom (insert the @ and "." where indicated - we avoid spelling it out to foil the spam bots). Or, if you’d prefer, call anyone at Lynch Ryan (my direct line is 781-431-0458, Ext 1). We’d love to hear from you.

By the way, if you do get in touch, let us know what you think of the Insider and if there’s anything you‘d like to see us do to make it even better.

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November 3, 2006


Bath Iron Works (BIW) builds ships. The first was The Cottage City, a passenger steamer completed in 1890. Over the past two decades, their work has been limited to building destroyers for the US Navy. We read in the Kennebec Journal that the builder of destroyers is being clobbered by the high cost of medical care for injured workers. There's supposed to be a fee schedule capping the cost of medical services in Maine, but the workers comp board has never been able to reach agreement on the rates. So BIW is suing the workers'comp board to implement the fee schedule. Imagine: a major employer suing government to implement regulations! What brought about this irony-laced situation?

Deadlocked Board
Maine was supposed to implement a fee schedule for all medical services fourteen years ago. Ten years ago the board approved a list of fees for doctor visits, but after that they got stuck. They have been unable to come up with set fees for such key items as operating rooms, hospital beds or other hospital services and equipment. That kind of tells you that doctors were unable to lobby against the rate setters, but hospitals - with their collective clout - succeeded very nicely.

In the absence of a fee schedule, self-insured BIW has to pay the "usual and customary fees" for all hospital services. We all know what that means: you have to pay the fees that have become highly unusual and no longer customary. Large insurers might be able to negotiate their own rates. But BIW is on its own in the workers comp system. They have no friends in high places and no leverage for negotiating the fees.

Gunboats on the Kennebec?
BIW's lawsuit provides an example of a worker who was injured and needed surgery at a cost of nearly $6,500. BIW asked the workers' comp board to allow the company to examine the hospital's records and present evidence that the fee was higher than average. (Given that almost no one pays "usual and customary" rates, the fees were probably inflated.) But the hearing officer denied the request for records and refused to hear the company's arguments.

He ordered BIW to pay the bill, saying that since the board had never adopted a fee schedule, the question of whether the bill was reasonable was irrelevant. (Given the apparent arrogance of the hearing officer, we can imagine that BIW had fantasies of sending one of their boats up the Kennebec River to offer him an opinion of their own. Alas, the Kennebec is so shallow, it might float logs and canoes, but certainly not a destroyer.)

Breaking the Logjam
Paul Dionne is the executive director of the workers' comp board. He notes that the comprehensive fee schedule for hospitals and surgical centers has never come up for a vote. The board has been deadlocked on the issue for over a decade. Up until 2004, the board consisted of four members nominated by labor groups and four by management groups. They could not reach agreement on the fee schedule. Finally, frustration with the deadlock resulted in legislative action. The board has now been reconstituted into three labor representatives, three management representatives and Dionne himself, who chairs the panel and has a vote. We get the impression that Dionne has a mandate to build a fee schedule for Maine.

A group representing doctors, hospitals and other health care providers was asked last year to come up with their own fee schedule, but that panel reported earlier this year that it couldn't reach a consensus. Well, duh. That's like asking people how big a pay cut they would like this year. Fee schedules are not likely to emerge through a democratic process, especially when you limit the discussion to stake holders.

The Massachusetts Example
Maine does not have far to look for a fee schedule that radically reduced the costs of workers comp. The Bay State has one of the lowest fee schedules in the nation, with the fees tied to Medicare rates. You won't find a single hospital that's happy with these rates (indeed, they are too low), but the fact is that in Massachusetts the medical portion of total workers comp costs is around 36% (compared to nearly 60% in many other states).

In practice, the scheduled fees in Massachusetts don't always prevail. Insurers often have to negotiate higher than fee schedule rates for specialty services. But overall, the fee schedule has driven down the cost of comp for the state's employers.

The bottom line is fairly simple: if you want to reduce the cost of workers comp, someone has to pay. Injured employees pay through reduced benefits. Fee schedules make health providers pay. In the absence of a fee schedule, Maine is a relatively high cost state (ranked 13th overall in 2004). By contrast, Massachusetts is ranked 45th.

BIW's lawsuit is likely to provide the kick in the pants that Maine needs to get this particular administrative chore accomplished. Until they do, BIW will continue to pay a premium for medical services: highly unusual, not exactly customary and very expensive, indeed.

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November 2, 2006


New Health Wonk Review - Health Wonk Review - hot off the press, over at Jason Shafrin's Healthcare Economist. His introduction states:

When economists analyze any industry, their first step is to look at the incentives facing the producers and the consumers. Next, an economist will examine the manner in which the government is regulating the industry and then the investigator will estimate whether or not the government activity is economically efficient. In this week’s Health Wonk Review we will focus on each of the 3 entities – producers, consumers and the government.

More from Ohio - Joe Paduda at Managed Care Matters keeps us updated on the latest doings in the Ohio scandal watch. This is a many-headed Hydra - there's a new headline spawned every day. Today's news question from The Columbus Dispatch: whether political influence played a role when premium rates for certain employers were lowered without proper justification.

Iraqi contractors - We've talked about independent contractors in Iraq a few times, and the issue of workers comp coverage - although its been hard to get information on this topic. Now, we learn that things seem to be getting too dangerous for the the independent contractors. Kroll, a Manhattan security company owned by Marsh & McLennan, has withdrawn its bodyguards from Iraq after it lost four workers. According to AP reports, Marsh & McLennan's third quarter financial report stated, “results for the security group reflected the orderly exit from high-risk international assignments that had limited profitability and no longer fit Kroll's business strategy.” Yesterday also included a report from the San Francisco Chronicle that Bechtel is pulling its contractors out of Iraq after seeing "52 of its people have been killed and much of its work sabotaged as Iraq dissolved into insurgency and sectarian violence." The article paints a bleak picture.

Multilingual safety - Peter Rousmaniere at Working Immigrants discusses how Spanish language barriers increase hazards on construction sites, noting that mandating "English only" workplaces is not a solution since courts have only upheld this practice is business necessity can be demonstrated.

According to the U.S. Bureau of Labor Statistics, total workplace fatal injuries in 2005 fell 1.2%. But the number of fatal injuries among Hispanic workers rose 2% last year to 917, Mr. Carter noted. And in 2004, while the overall number of workplace fatal injuries was up 2%, fatal workplace injuries among Hispanic workers rose 11%.

Scaffolding - We read about a coalition of NY businesses are suing to get the state's scaffolding law overturned just after seeing Jordan Barab's item about another scaffolding death yesterday in NY. If today tracks to the average, two workers will die from falls today.

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