Massachusetts recently announced yet another reduction in workers comp rates, this time a double digit 16.9 percent. Since 1990, when the state implemented wide-reaching reforms, the rates have come down well over 60 percent. Employers are paying about the same rates that were in effect in the early 1980s. It's the greatest comp success story among the industrial states. Indeed, with this pending reduction, the cost of workers comp in MA is likely to be among the bottom five states across the entire country.
This impressive performance is even more remarkable when you consider that the state offers some of the highest benefits available to injured workers. It seems paradoxical: very low costs for businesses, very high benefits for injured employees. So the question becomes: who pays? Who bears the burden of the "Massachusetts miracle"?
Any analysis of shifting burdens should focus on comp's key constituencies: injured workers, medical providers, insurance companies and attorneys. Let's take them one at a time:
Injured employees: while MA offers one of the highest indemnity wages in the country, it also has a relatively low rate of reimbursement: injured workers collect just 60 percent of their average weekly wages, tax free. Most states offer at least 66 2/3 and some over 70 percent. You will hear complaints from organized labor in MA that the rate is unacceptably low. To qualify for the maximum indemnity, a worker would have to make over $1,600 a week. With the exception of the skilled trades, most people on workers comp collect nowhere near the maximum amount.
Medical providers: In most states, medical costs in the comp system are soaring, reaching 60 percent of total costs and more. In MA, by contrast, medical costs are still only about 35 percent. Why? The state may be blessed with as good a medical infrastructure as you can find anywhere in the world, but the providers in this system are squeezed to the max by very low rates of reimbursement in the comp system. The rate schedule runs about 20 percent below Medicare. By any standard, that is just unacceptable.
To be sure, when you get beyond primary and emergency care, few self-respecting doctors will accept the deflated rates. To get injured workers into specialty care, insurance adjusters routinely negotiate higher rates. (Try to find a hand surgeon willing to work for a flat fee of $750. If you found one, you would not trust him or her to do the work.)
Insurance carriers: a number of insurers have fled the state, complaining that the rates are just too low. (If the rates were inadequate last year, how will they look after an additional 16.9 percent reduction is tacked on?) The state's remaining carriers are understandably nervous. With the state's aging workforce, the shadow of terrorism and workers comp the potential retirement system of choice for those with no choices, carriers are sweating at the prospect of another rate reduction. As carriers hone their underwriting criteria, we are likely to see a growth in the assigned risk pool (currently running about 15 percent of the market). Add to this mix the fact that data from the state's largest comp carrier, AIG, was not factored into the rate setting, and you have a potential witches brew for a troubled future.
Attorneys: Prior to the reforms, Massachusetts routinely cut settlement checks for injured workers who could not (or would not) return to their jobs. There were about 20,000 such settlements a year. Now we are seeing about 8,000 settlements a year. Settlements are the bread and butter of attorneys, who rarely counsel their clients to go back to work. It's safe to say that attorneys, along with medical providers, are bearing the brunt of the Massachusetts reforms.
Lessons from the Bay State
Is Massachusetts the gold standard for workers comp reform? In many respects it is. We should keep in mind, however, that the world of comp, like everything else in life, is constantly changing. Reform comes at a price. We need to re-evaluate periodically, to work toward an ideal balance. So the lessons learned from the Commonwealth should include some underlying realities:
Injured employees: it's great to set a high ceiling for indemnity and encourage return to work, but the reduced rate for indemnity is unfair and a burden for disabled workers.
Medical providers: Pay a fair rate for services rendered, lest other payers be made to subsidize the real costs of treatment. The rate schedule needs to be revisited.
Insurance companies: as long as carriers continue to offer significant premium discounts (and they do), they undercut their argument that rates are too low. When the premium discounts disappear, the rates will stabilize - and might even go up.
Attorneys: I respect the role of attorneys in the comp system - and I'm confident in their collective abilities to find opportunities in the ever-evolving system.
Finally, let's not forget the unprecedented employer education project that anchored the reforms in Massachusetts. The Qualified Loss Management Program (QLMP) offered signficant premium discounts to employers in the assigned risk pool who agreed to learn how to manage the costs of workers compensation. With over 60 percent of the state's employers in the pool during the early 1990s, the QLMP program transformed the way employers viewed workers comp. They began to perceive comp as a manageable aspect of business. They understood the relationship between their losses and their future costs. They learned that loss prevention was worth every reasonable effort. And they also recognized that by using temporary modified duty to speed recovery, they were helping their workers and helping themselves by lowering the future cost of insurance. This unprecedented education project is the heart and soul of the state's comp success story.
Any state wishing to duplicate the wildly successful reforms in Massachusetts should keep the QLMP employer education component firmly in mind. Employers are key players in the workers comp system. If you really want to improve your results, employers must be the centerpiece of your effort.