March 5, 2007

Massachusetts: Once more into the rate filing breach

In what continues to be perhaps the nation's biggest workers' compensation turnaround success story, the Massachusetts Workers' Compensation Rating and Inspection Bureau (WCRIB) on Friday filed a proposed average rate decrease of 13.4% to become effective 1 September 2007. If the state's newly appointed insurance Commissioner, former Superior Court Justice Nonnie Burns, approves the filing, rates in Massachusetts would be 64% lower than they were in 1991, when the Massachusetts workers' comp law was reformed, and nearly 70% lower than the high water mark of 1994.

Many other states have reformed their laws and achieved lower rates, but what is remarkable about Massachusetts is that while it has become one of the lowest cost states in America for employers, it continues to rank among the top 5 in terms of benefits awarded to injured workers. A very neat trick, indeed. (See our prior discussion of the rankings).

There are a number of reasons for this success; four stand out.

  • The 1991 reform lowered the temporary total disability payout from 66 2/3% of the injured worker’s wage to 60%. Concomitantly, the law tied the maximum weekly payment to the annual inflationary growth rate of wages in the state. Now, in 2007, that maximum is more than $1 thousand. This was a monumental compromise by business and labor.
  • The reform law established a medical fee schedule that was the lowest in the nation. Initially tied to Medicaid rates, the schedule now is about 80% of what Medicare reimburses, which many health care providers claim is ridiculously low. While surgeons and other Massachusetts medical specialists no longer accept these rates and will only ply their trades after negotiating higher payments with insurers and employers, primary care, as well as emergency care, physicians continue to work under the depressed rates. While this has been profitable for employers and insurers, it is a pressure cooker on the workers’ compensation stove, and the pressure is building.
  • The reform law significantly updated the state's antediluvian Department of Industrial Accidents (DIA). Process was streamlined, the administrative law judge corps expanded, attorney involvement and fees reduced, staff professionalism augmented and a fraud unit created. It has taken time, and many still complain that things take too long to get done, but it seems indisputable that the DIA's performance is considerably improved.
  • Employers got religion. At the time of reform and on a per capita basis, Massachusetts had the largest assigned risk pool in the nation. Fully 65% of all premium and 85% of all employers were pool-bound. The state's premium was just about $2 billion. In a leap of faith, the WCRIB, on behalf of the insurance industry and with the approval of the Commissioner of Insurance, created the Qualified Loss Management Program. The QLMP functioned as a kind of tuition reimbursement program for employers by which they received premium credits of up to 15% in return for engaging qualified consultants to help them prevent, minimize and manage worker injuries. The program was a Lynch Ryan proposal and, if you'll pardon an immodest moment, a huge success. Loss ratios declined precipitously, the pool drained, employers saw steep declines in rates and the P&C industry became profitable once again in Massachusetts.

A few dark clouds looming
Despite all the good news, the outlook isn’t totally bright. There are two dark clouds on the Massachusetts workers’ compensation horizon.

First, there is the little matter of AIG, which, at 30% market share, is the state's largest workers' compensation insurer. That would be fine if only AIG's statistical data were reliable. But it wasn't in the 2005 rate filing and, consequently had to be excluded from the filing. Now, history repeats itself and, once again, AIG's data has been deemed unreliable and is excluded from the present filing. This is a large embarrassment for the WCRIB. Bureau leadership would have much preferred to delay the filing to devote more time to the AIG problem, but by law there must be a filing every two years. But I know for a fact that the Bureau did all in its power to work with AIG to get reliable data. It didn’t happen, and more's the pity, because this opens the door to disputes in the rate hearing process. One would be pardoned for asking at this point, "What in the world’s going on with AIG?"

As if that weren't enough, during the rate filing of 2003, Massachusetts Attorney General, Tom Reilly, decided to enter the fray. At that time, the WCRIB filed for an increase in rates of 8.6%, the Division of Insurance's State Rating Bureau countered by filing for a decrease of nearly 10%. For Reilly, that wasn’t good enough. His office filed for a decrease of a whopping 21.4% (see my analysis of that rate dispute). Now, AIG's exclusion provides the springboard for similar dueling filings. We shall wait to see if Massachusetts' newly elected AG, Martha Coakley, is more temperate than her predecessor.

Notwithstanding the clouds, the workers' compensation picture in the bay state is pretty rosy. As we enter the rate hearing process, it will be interesting to see if it stays that way.



A very informative (and eminently readable)summary. Thank you. Is there anything online that (1) describes the QLMP, and (2)provides data showing the impact of QLMP by comparing before and after?

It looks as if they are lowering their costs by placing the burden on the backs of the patients and physicians. Sure if you limit acess(ie few doctors) and make it almost impossible to finacially survive(who can live on 60% of their current salary) you will lower costs. But I bet it is a two teer system where desposable workers, typically low wage low skill emplloyee's are covered by cariers who have the lowest bidder medical specialist while the skilled workers are covered by top quality medical specialist and almost never are "off work" so they receive their full salary. Quite clever but i wonder if all of the laborers realize this goes on, probably not. If so this is really unfair to the unskilled laborer who is legitamitlly injured.

Steve, in answer to your question - Yes, you will find a complete description of the QLMP on the website of the Workers' Compensation Rating & Inspection Bureau of Massachusetts (WCRIB). The link is in my post. Also, the Bureau did a comprehensive "before and after" study that concluded that it was very successful (here's the link for that study). The study was done by Howard Mahler, the Bureau's highly-repsected chief actuary at the time.

Whoa, now. Slow down, Dr. Somerville. You’re making big rhetorical leaps to conclusions and judgments that aren’t justified by facts. Let’s take your points one by one.

1. Access to care in Massachusetts is not limited or restricted for injured workers. Massachusetts is an “employee choice” state. As such, injured workers get to select doctors for their care. An injured worker can go to his or her own physician, or anyone else’s physician.
2. The wage replacement level of 60% is delivered tax free. That’s right, neither federal nor state taxes are drawn on it. True, the level is lower than it was prior to reform, but there has been no concerted effort by labor to revert to the pre-reform level of two-thirds.
3. There is no “two tier” system. Yes, some insurance companies provide better service that others, just as some doctors provide better care than others, but, regardless of the insurance carrier’s quality of service, low and high wage earners get the same system from the same claims adjusters. As I noted in my blog post, however, high wage earners can only receive indemnity wage replacement up to the maximum allowed in the state at the time of their injuries, which, in fiscal year 2008 (1 October 2007 – 30 September 2008) is about $1,000.
4. There are no “low bid medical specialists.” The worker retains control in choosing specialist care. True, specialists won’t work for the fee schedule in most cases, but negotiations most often result in agreement regarding the fee. In fact, we think that workers’ compensation medical care is the best health care plan in America for workers. There are no co-pays, no deductibles, no premiums and all prescription medications are free to the worker.
5. Finally, studies done by the Workers’ Compensation Research Institute involving detailed interviews with Massachusetts injured workers reveal that the vast preponderance of them are “satisfied” with their medical care.

There certainly are things within the Massachusetts workers’ compensation system that need improvement, but it seems to me that injured workers, whether low or high wage earners, receive good medical care when they fall into it. Having worked as consultants in nearly every state in America, it seems to us at Lynch Ryan that, relatively speaking, Massachusetts is doing a significantly better job with its workers’ compensation system than most other states.


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This page contains a single entry by Tom Lynch published on March 5, 2007 7:15 AM.

Cavalcade of Risk #20 was the previous entry in this blog.

Will Comp Reform Cross the Delaware? is the next entry in this blog.

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