Summer Hire Turns Tragic
A little over a year ago we cautioned employers to be careful with summer hires. Make sure summer hires are qualified to do the work. Don't allow them to operate heavy equipment. And perhaps most important, don't just "toss them the keys" when driving is required.
Today we read in the New York Times (registratoin required) of a tragic accident in upstate New York. A car full of aspiring dancers was on its way to a lake for a swim. The driver sped along narrow roads, reaching speeds of 80 mph or more, until she lost control and slammed into a county dump truck. The small Toyota disintegrated upon impact, killing six people, the driver and five youngsters.
It turns out that the driver, 25-year-old Irina Mironova of Miami Beach, Fla., had a suspended Florida license for driving more than 100 mph. To be sure, many people get speeding tickets, but how many involve going 107 mph? This is a blatant case of negligent entrustment: Mironova should never have been allowed to drive. Not only did she have a poor driving record, if asked, she could not have produced a valid license.
I have no idea what the finances for running a small camp in the Catskills are like, but the camp would be required to carry liability insurance. In addition to suffering the pain of losing her youngest son, the camp's owner, Anna Kapitannikov, in all likelihood faces protracted legal actions for this single act of negligence. For lack of a simple check on her counselors's licenses, her life and her business are in ruins.
Good management takes nothing for granted. The fact that someone is 25 and knows how to drive does not mean you can trust them behind the wheel. A little due diligence is always in order. For the few moments that might take, you could be spared a lifetime of grief.
Healthcare weblogs added to our sidebar
We'd like to welcome two new weblogs to our sidebar. We nicked them both from Joe Paduda's blog, one of our frequent reads.
DB's Medical Rants is a blog by an academic general internist who comments on medical issues and the current state of medicine. Recent posts range from how patients are increasingly participating in decision making to physician report cards.
The Health Care Blog by Matthew Holt offers excellent and informed commentary on the healthcare industry and public policy issues related to healthcare.
And if the healthcare side of the equation is where your interest lies, we encourage you to check out Medlogs where you can access newsfeeds for dozens of blogs by physicians, nurses, and industry insiders. We have a variety of other good reads in our sidebar, too - check them out.
BP's Damage Control
In the aftermath of the March explosion at BP's Texas City refinery that killed 15 people and injured 170, we are beginning to understand the roots of the problems that led to the explosion. We are also seeing BP's damage control in action -- a far more impressive operation than the safety program that preceeded the disaster.
In a detailed and compelling article by Chip Cummins and Thaddeus Herrick in the Wall Street Journal (available to subscribers only), we see the elements of a classic invitation to disaster. BP bought the facility from Amoco in 1998. Prior to that, Amoco apparently had cut back on staffing and deferred routine plant maintenance. By the time BP took over, there were deeply rooted problems in the plant's infrastructure that were, in effect, an invitation to disaster. Workers reported problems with severe corrosion throughout the plant. The place was literally falling apart.
As part of its cost control measures, BP cut staff in the newly purchased refinery. As we saw in our previous blog, they relied more and more upon contractors for the routine day-to-day operations that were formerly the responsibility of regular employees. These contractors were less likely to understand the critical procedural issues that led to the explosion. In addition, we learn that the isom unit where the explosion took place was an inherently dangerous part of the operation. The unit's daytime supervisor arrived late the morning of March 23. Then, just before 11 a.m., he left the plant for personal reasons. (BP fired him after the accident.)
That supervisor is a co-plaintiff in a defamation suit against BP. His attorney said that his client left to attend emergency surgery for his son, who had broken his arm the day before. The supervisor claims that he lined up a replacement to supervise the start-up and shouldn't have been fired. The bottom line, of course, is that the supervision was inadequate. By 12:40 p.m., pressure and heat had climbed above normal levels in the isom unit's processing tower, where gasoline components are separated. A worker outside the unit called the control room to report steam-like vapor coming from the unit's smoke stack, an indication that something might have been going wrong. Unfortunately, nothing was done about it.
At about 1:20, a small explosion occurred, followed by a much louder one. People working on the isom unit, along with people in trailers (placed too close to the isom unit), were killed and injured in the disaster that followed.
Talk without Walk
Here is BP's classic description of their safety program, which shares a fatal flaw with many such programs in thousands of workplaces: "I think the culture of safety, in terms of policies and procedures, was there," said Ross Pillari, president of BP Products North America. "But the implementation of these policies and procedures was clearly not there, because if it was, the accidents wouldn't have happened." In other words, we had a written safety program, but people were not following it. I imagine that there was an explicit drill for shutting down and re-opening the isom unit. But it's all too clear that these procedures were simply not followed.
In addition to the March incident where 15 people died, there were five additional fatalities in BP facilities in the US, compared to a single fatality in facilities operated by two larger refiners, ConocoPhillips and Exxon Mobil. Draw your own conclusions.
BP is walking an interesting line in its response to the accident. While it has denied any negligence and is cooperating with federal investigators, it has also apologized and has moved aggressively to settle out the claims of victims and survivers. At the heart of their strategy is a $700 million kitty to pay settlements (a raw average of $3.8 million). A number of employees injured in the blast have raised serious safety issues; the company responds not through denial or acceptance -- they simply seek to settle with these employees (which puts an immediate end to the employees' public statements).
Doing the Right Thing
You can find a lot of fault in BP's procedures prior to the accident. You can and should raise questions about cutbacks in staffing levels, over-reliance on contractors, inadequate plant maintenance, lack of safety training for staff and contractors. But now that the dust has literally settled, BP management deserves credit for taking responsibility and for moving aggressively to take care of the victims. They are not in denial about management's responsibility for what happened. It's hard to deliver credible damage control when you refuse to acknowledge the mistakes that have been made and when you put your energies into blaming others. I am impressed with BP's approach and would encourage other entities -- both private and public -- to do the same when confronted with disasters of their own making.
Alcoholism and Work: The Devil's Brew
We begin today's blog not in the workplace, but in the home. The family basement, to be exact. According to the Detroit Free Press, Merle Rydesky wrapped a chain around his 57-year-old alcoholic brother's neck, binding the other end to a bedpost in the basement. He padlocked the chain, pocketed the only key and left for work. His was trying to keep his younger brother sober, he said, in hopes of getting him into a treatment program. His brother had to stay sober for five days before he could be admitted to a detox program.
About four hours later, James Rydesky was found dead in his Dearborn MI home, choked to death by the chain wrapped over a basement banister, his body hanging in a semi-seated position. His elderly mother found the body.
The most surprising part of this story is that Merle Rydesky is a well-respected doctor who chaired the emergency medicine unit at Providence Hospital in Southfield for 20 years. He obviously did not specialize in substance abuse! Rydesky was spared any prison time by pleading guilty to involuntary manslaughter.
Rydesky's dubious approach to detoxifying his brother raises a number of interesting issues related to drunkeness. We've been here before -- in the high profile cases where employers are confronted with employees who drink. We recently profiled the case of Thomas Wellinger, who may qualify for the Guinness Book of Records for his blood alcohol content of .43. Driving in a drunken stupor, he wiped out a mother and her two sons -- but as is so often the case in these tragedies, he himself survived and now faces serious criminal charges.
And in Newsday here's yet another affluent individual whose driving has destroyed the lives of others and brought his own life to the verge of prison. This time it's a well known trial attorney named Keith Kalmus. Prosecutors say Kalmus was driving at 85 mph in a 30 mph zone, lost control of his Ford Explorer and swerved into the eastbound lane, colliding with a Subaru sedan. The collision killed Belgian visitor Eva Bertuccioli-Krapfenbauer, 65, and critically injured her sister, Margot Krapfenbauer of Austria, and her son Claudio Bertuccioli and his wife, Rebecca McMillin, both of Brooklyn.
Alcoholism as Disability
There is little question that alcoholism is a life-threatening condition. What makes it unusual is that the threat is not just to the alcoholic, but encompasses immediate family members (just ask Dr. Rydesky) and innocent bystanders as well. It is considered an illness, but unlike most illnesses, theoretically the alcoholic can sober up at any time. This is one illness from which you can walk away when you are ready.
Under the ADA, recovered alcoholics are considered individuals with a disability and as such are protected from discrimination. However, the ADA draws the line at active drinking. Once employees "fall off the wagon," they are no longer protected by the ADA. (Some state disability laws, however, expect employers to take proactive steps to help the relapsed employees enter a treatment program.) When employees have a drinking problem, employers are faced with a lot of uncertainty -- up to a point. As soon as the drinking endangers the employee and or others, employers are expected to take decisive action.
Responding to Impaired Employees
We've been tracking the Wellinger case from the perspective of liability: who will pay the price for Wellinger's appalling performance behind the wheel? His lawyers have taken steps to protect his assets, putting a valuable vacation home into a trust -- and thereby out of the reach of his victims' family. The search continues for the party or parties who provided the alcohol to fuel his astonishing blood alcohol level. Was it a package store? A bar? Most important for our purposes, what did the employer know about his impaired state? Did they allow him to drive off drunk, without taking appropriate action to protect the general public? If the employer had any knowledge of his drunken state, they will assume at least some of the liability for his actions, because they failed to notify the police of the immanent danger.
We encourage employers to have written policies to ensure a drug and alcohol free workplace. Most do. The problem is in the execution. How do you enforce the policy? How do you balance the privacy concerns of the employee with the obligation to provide a safe workplace? Most important, how should you respond when you become aware of a potential danger? Let's say you take what you think is appropriate action because someone has a history of alcoholism and you think they look impaired, but it turns out you are wrong. They are perfectly sober. If you are not very careful, your "action" may be an act of discrimination. On the other hand, you have a popular employee who has four alcoholic drinks at lunch, but you take no action, because he's such a good guy. He drives off and wreaks havoc on the road -- and because you had knowledge of the drinking, you are liable for your failure to take action. Talk about being between a rock and a hard place!
These situations do not arise in a vacuum. I was struck in the Wellinger story about the months preceeding the accident. He had gone through a painful divorce. Evidently, he was very distrought by the breakup. He was a good employee going through a rough time. I wonder what the employer did to support him during his troubled divorce. I wonder if they encouraged him to get help. I have no idea whether his drinking prior to the divorce was a problem, but he clearly began drinking more and more heavily after the divorce, building a remarkable tolerance that enabled him to reach nearly impossible blood alcohol levels. Did his supervisor look the other way? Did co-workers feel too embarassed to question him? Did they simply hope the problem would go away? The truly sad part is that their failure to intervene probably contributed not only to the deaths of three innocent people, but to the end of Wellinger's career as well.
If there is a single answer to these problemmatic situations, it's keeping the lines of communication open. Management requires open eyes and, to the degree possible, open hearts. There are unthreatening ways of initiating a dialogue with troubled employees. It's not easy, but considering the devastating tales in today's blog, it's well worth the effort.
Litigation funding firms and workers comp cases
A reader asks for information about "litigation funding" firms. These are companies that offer an advance to claimants to fund litigation. I had never heard of these types of organizations being used in workers compensation cases, so this question sent me digging. Who better to offer an opinion than an expert? Alan Pierce of Alan S. Pierce & Associates is an employee’s attorney. Since his firm specializes in representing the interests of injured workers, I asked him if he could weigh in on the matter. Here are his comments:
“I will begin with this caveat - I am no expert on the matter and have never utilized a legal funding company. With that in mind, I can offer a few thoughts that might be helpful to your readers.
There are two general situations when services of such a company are used. The first is to advance cash to a plaintiff in exchange for a repayment at a rather high interest rate when the case settles. The risk to the lender is that if the case is lost there is no re-payment.
An attorney may not advance monies - that is clear. Legal funding companies have been created in the last few years. We hardly ever see these companies being involved in workers comp cases for a couple of reasons. First, unlike a tort case, a workers comp case often does not result in a settlement. All my tort cases either settle or go to trial with a verdict being the result, therefore, on clear liability tort cases there is likely to be a settlement or judgment. This is not the usual path with workers comp. A claim may indeed settle by lump sum or, more commonly, it may not: The employee will receive weekly benefits for the period claimed with no lump sum occurring.
Second, we sometimes see legal funding in workers comp cases to "buy out" a structured settlement. In many states, selling a structured settlement for cash in a workers comp case is either prohibited by the contract or by statute. Often, the funding company simply will not purchase a workers comp structure.
Some attorneys discourage clients from contracting for a cash advance because the money is usually dissipated long before the case settles and it is ultimately expensive to the client. Also, it may lead the client to reject a reasonable settlement offer which, after legal fees and repayment, leaves the client little, increasing the likelihood that the client will opt to 'roll the dice' at trial. If the client loses, the attorney and the funding company get nothing. Most attorneys want their clients to make rational settlement decisions without the added burden of a loan to be re-paid.
Another area that is less controversial is using a funding company to loan money to the attorney to cover litigation expenses. This is a more conventional situation and in accordance with IRS regulations treating litigation expenses as 'loans' to the client as opposed to business expenses. Usually these arrangements are with more traditional lending sources, although legal funding companies do these loans as well.
I would stress that it is the very rare workers comp case that commands the necessary case expense for an attorney to justify going this route. Most of my cases involve expenses in the hundreds of dollars or, rarely, one or two thousand dollars. We have the client pay if they can, or we disburse and recapture later.”
Many thanks to Alan for his perspective. If there are any other attorneys who have thoughts on the matter, we would encourage comments.
The New York Bar’s Committee on Professional Ethics and the Pennsylvania Bar Association’s Professional Guidance Committee (pdf) have both offered opinions on the issue, although it should be noted that the opinions are not workers compensation-specific, they have more to do with the industry at large.
Public Safety Workers Comp: Big Questions, Few Answers
Michael Forman, 39 years old, is a Suffolk County policeman with 13 years on the job. During that time, he received nine awards for exceptional police work -- and filed 12 workers comp claims. It's the last of these claims that has brought him his current notoriety. He says that he hurt his wrist in April of 2003 -- an injury of unspecifried origin, but so severe he could not drive his car, pull the trigger of a gun or even answer a telephone. He's been collecting 100% of his average weekly wage (tax free) plus his other benefits for over two years. Because the indemnity is tax free, he is actually making more money by not working. In all, he's collected about $250,000 in disability benefits since he left work with his injury. He was recently indicted for workers comp fraud (though under comp rules, he continues to collect a pay check).
During his prolonged disability, Forman continued to serve as a volunteer fireman in his hometown of Bethpage, Long Island. While disabled from police work, he responded to over 200 calls. According to prosecutors, two days after one visit to police doctors, when he told them he couldn’t drive or perform police duties, Forman was videotaped driving his fire chief’s vehicle to respond to nine emergency calls. During his two year “disability”, Forman was certified as a rescue scuba driver and was given the highest classification possible for a volunteer firefighter, which requires an annual testing to show that he was fit enough to stretch hoses, raise ladders, use heavy tools to break down a door and carry out search and rescue operations.
Forman's situation raises a number of interesting questions. I am intrigued by the response of the police docs to his claims of disability. His ability to perform strenuous (volunteer) work implies that there were few if any "objective" findings in his medical testing. If his wrist was truly dysfunctional, he could not have performed his duties as a volunteer fireman. His inability to even answer a telephone should have raised a few eyebrows. Days, weeks and months pass and he still cannot pick up a phone? I doubt that Forman's supervisors kept in contact with him during the disability. I wonder if the department paid any attention to getting him back to work. It sounds as if they simply took his word for the situation and failed to make a concerted effort to return him to productive employment. Management dropped the ball and Forman blithely ran away with it.
Public Safety Comp: The 900 Pound Gorilla
In most states, police officers and firefighters benefit from robust indemnity protections, as well they should. While disabled from work, they generally receive 100% of their wages, tax free. Given the high profile risks of the work, this seems fair and equitable. But it may also be ethically tempting to some. It certainly appears that Forman took advantage of the situation: he continued to be a hero (as a volunteer firefighter) while collecting substantial wages (as a "disabled" cop). The cost of disability for public safety employees is a crisis that plays out across the country, from one local community to the next. The really interesting part is that no one really knows how big the problem is.
When you ask states and municalities how much workers compensation costs, they are most likely to show you a line item in the current year's budget. This line item is usually a pretty big number, depending upon the size of the municipality. Unfortunately, the line item does not tell you what you need to know. It's an aggregate which includes the costs of comp in all prior years: it contains the long tail of claims that may go back decades. So this year's line item contains the indemnity and medical to be paid for all the claims in all prior years. It does not help you understand year to year trends. It does not allow you to compare results from year to year.
Here's another common problem: because they simply pay from year to year, states and municipalities usually have no idea what a given claim will ultimately cost. Unlike private insurers, they generally do not set accurate reserves on claims. More importantly, they have no incentive to settle out and close claims, because such settlements actually increase the costs in the current year -- and no politician wants to do that! It appears to be less expensive to just pay the benefits from year to year, like a snowplow pushing more and more snow straight ahead of itself. Eventually, the plow grinds to a halt.
Measuring Performance in the Public Sector
To really measure performance, municipalities and states need to disaggregate the data from one year to the next. They need to establish accurate reserves on all open claims. They need to track trends from year to year. Other than trying to settle, there's not much you can do about losses in prior years. However, you can set ambitious goals and try to contain costs going forward. You can align incentives, so that a public safety employee has more to gain by staying healthy and staying on the job than by going out on disability. (For more on this, the Public Entity Risk Institute has an interesting discussion paper here.)
Officer Forman's apparent abuse of the system is by no means typical of workers comp in the public sector. But his story does bring into focus a pervasive problem: the lack of accountability in the expenditure of public funds and the lack of management focus in returning injured employees to work. Public sector comp tends to drift from year to year, with no sense of accountability or direction. It doesn't have to be this way, but there are few incentives to change it. So it's not likely to improve any time soon.
Exclusive remedy upheld in Lockheed Martin shooting case
Over today's wires comes the news that a federal appeals court has just upheld workers compensation as the exclusive remedy for the nine surviving victims and the families of the six workers who were killed in the 2003 Lockheed Martin shooting in Meridien, Mississippi. According to the news report, this would limit damages to about $150,000. The Picayune Times has a longer story detailing the appeal a few weeks before the judgment.
Exclusive remedy is a strong concept that holds up under repeated legal challenges. Workers comp is no fault by its very nature, a quid pro quo arrangement in which employers agree to provide medical and wage replacement to injured workers, and in turn, this becomes the sole remedy. In all but the most unusual circumstances, employees lose the right to sue their employer for work-related injuries. Sometimes this seems unfair to a worker because benefits are paltry when stacked side by side with enormous awards from civil litigation. But when legal challenges succeed, they weaken the system's underpinnings. Workers comp is essentially a safety net, a system designed to provide the best for the most, not to provide individual redress for every wrong.
When litigation is successful at piercing the exclusive remedy shield, it often involves employer misconduct that is highly egregious. If an employer can be demonstrated to have intentionally caused an injury or to have intentionally defrauded an employee in some way, those actions might be sufficient grounds for a suit. But the standard of proof for such challenges is quite high – many states require proof of willful intent. It must be demonstrated that the employer had substantial certainty that an injury would occur.
In this case, the shooting victims and their surviving families sued the company on the basis of having been deprived of civil rights, alleging that management knew of the threat and "...knew employee Doug Williams' racist views had created a volatile work environment but did too little to defuse the situation."
ABC’s Primetime recently highlighted this chilling case in some detail, and the report paints a disturbing history of overt racism and repeated threats that preceded the rampage. The shooter had issued death threats on many prior occasions and many employees - including some of the victims - believed he would act on those threats. The certainty of endangerment by coworkers was a hallmark of the Wakefield office massacre a number of years ago, too – victims had shared fears for their lives with spouses before they were killed. Verbal threats and other warning signs must be treated with the utmost seriousness.
Exclusive remedy bends but does not break
The history of workers compensation
NIOSH: Violence in the workplace: Risk factors and prevention strategies
OSHA: Workplace violence
AFSCME: Preventing workplace violence
Vioxx: The Trials Begin
The first of what promises to be thousands of lawsuits pertaining to Vioxx is currently underway in Angleton TX, a town of 18,000 people. According to an article in the New York Times (registration required), famed plaintiff attorney W. Mark Lanier has zeroed in on a letter sent by Merck to physicians in 2001 which significantly understates the heart risks faced by patients taking the medication. The letter says that only 0.5 per cent of patients in a clinical trial experienced problems. The real number was more like 14.6 per cent experiencing some problems, with 2.5 per cent encountering serious problems such as heart attacks.
"Y'all didn't tell him the truth about the safety of Vioxx, did you?" Lanier asked Dr. Nancy Santanello, a senior Merck scientist. Y'all in big trouble, for sure!
Big Market Share = Big Problem
In the course of just four years in the marketplace, Vioxx was prescribed to 20 million people. In the workers comp system, it became the third most prescribed drug, just behind Oxycontin. While Oxycontin has proven to be highly addictive and a favorite of illicit users, Vioxx was never abused for pleasurable side effects. It was marketed as an anti-inflammatory medication for treating arthritis and pain. The drug was voluntarily withdrawn from the market last September. Lancet, the British journal, says that the company had enough alarming data to pull the drug all the way back in 2000, prior to the blandly worded letter that went out to physicians in 2001.
The drug is gone, but the lawyers are not going away any time soon. The financial implications are enormous. Epidemiologists have estimated that tens of thousands of Vioxx users may have suffered serious side effects from taking the medicine. One estimate has Merck paying out $18 billion -- big bucks even for a drug company.
Lawyers are going to focus on three types of damages:
Physical pain and suffering, mental anguish and physical
Medical expenses associated with the allegedly defective product
loss of earnings and or earning capacity
For persons who have died, family members can bring a
wrongful death action.
If you google "Vioxx" you come up mostly with lawyers, who are offering free evaluations of your situation online.
The Workers Comp Angle
In its short but highly effective shelf life in the American marketplace, Vioxx became a best seller in the workers comp system. As the liability saga unfolds in courtrooms across America, workers comp insurers will be more than disinterested bystanders. Here's why: heart attacks and strokes are known side-effects from taking Vioxx. Assume a worker took Vioxx for work-related lower back pain. In the course of treatment, he suffers a stroke and is permanently disabled. While there may be recourse in suing Merck, the first line of defense is workers comp: "I took the medicine for a work related injury. The medicine caused my stroke. Therefore, the stroke is causally related to my work injury." Up go the reserves, up go the payments, up go the premiums.
Even if the worker pursues a third party action against Merck, there is no guarantee that the insurer will benefit very much from the subrogation. Judges often limit insurer recoveries in these situations. Insurers may end up absorbing much of the financial impact of the medication on their claim -- which means, in turn, that some of the costs will be passed along to employers through the experience rating system. (It's important to note, however, that due to the discounting of "excess losses" -- those above $5,000 in each claim -- the Vioxx burden will fall more on workers comp insurers than on the insureds.)
Is there a lesson here? We think that doctors are making some peculiar decisions in relying so heavily on exotic medications such as Vioxx and Oxycontin. We question the process that leads doctors to pick the most expensive medication where other proven, less expensive alternatives are readily available. We remain sceptical of the influence that drug companies exert on which medicines are prescribed and when. Perhaps insurers and pharmacy management programs should hand out free mugs to every physician in their networks, emblazoned with the motto: "Remember Vioxx." It won't cost much and it just might save a lot of money in the long run.
New York Update: A Tweak in the Rates
We've been monitoring the rate setting drama in New York, one of the big four in overall costs of workers compensation (along with California, Texas and Florida). New York rates dropped dramatically in the mid 1990s and then held pretty steady for the remainder of the decade. As in many states, the rates have sharply declined from those of the early 1990s -- in New York the overall decline was about 30 per cent, which is pretty good, but still well below the Massachusetts benchmark of over 60 per cent.
When we blogged the rate debate in May, the state rating bureau was looking for a 16 percent increase -- which would have been the first increase of any kind in 10 years. Rest assured, rate setting is a hot political issue: any request to raise the rates is countered by intense pressures to lower them. At one point in the recent Massachusetts debate, there was more than a 30 point spread between requested rate reductions and rate increases. As for double digit rate increase requests, forget about it.
Do it for Hank?
Viewed politically, it's hard to generate support for rate increases. Insurance companies do not generally enjoy widespread public support. Does anyone really want to "do it for Hank" (Greenberg, formerly the head of AIG)? Insurers might have marginal profits or even losses, but the real bottom line is the cost of doing business in the state. Workers comp is mandatory, a fundamental cost of business. No governor wants to make business more expensive. Indeed, with the price of real estate and the overall tax structure, not to mention the onerous New York Labor Law, the cost of doing business in New York is already painfully high. So it's no surprise that after looking at the numbers, the state would only approve a token 5 per cent increase in the comp rates.
For a primer on rate setting and other comp essentials, NCCI has a nice outline here. One of things you learn is that a 5% rate increase does not mean that all classes rise by 5%. Rates will rise an average of 5%. The final rates are based upon losses within individual classes. The rates for some classes will go up 5% or even more and rates for other classes might actually go down. Insurance companies will thoroughly analyze the data, in order to determine which classes have the most potential for profit in New York.
Is the System Working?
What is perhaps lost in the rate debate is the quality of a given state's workers comp program. Too often, rate setters and politicians lose sight of the program's real goals. Does the system fairly balance the interests of employers and injured workers? Have reforms and lower costs come at the expense of injured workers? Are the incentives for employers to operate safe workplaces and to return injured workers to productive employment properly aligned? Does enforcement focus relentlessly on the potential fraud: not just the occasional employee fraud, but the big bucks generated by unscrupulous attorneys, health providers and employers?
Lurking beneath every rate setting debate is dark and intricate landscape full of fear and hope, greed and exploitation, dreams and nightmares. From our perspective, in the world of comp there's rarely a dull moment.
Exception to the "going and coming" rule: operating premises
I was catching up on back issues of Business Insurance this past weekend and came across an interesting recent decision by the Supreme Court of Kentucky involving the going and coming rule.
By way of introduction, the going and coming rule has to do with employees traveling to and from work. Generally, any injuries that an employee would suffer while traveling to and from work would not be compensable. There are several exceptions to this rule and the case of Warrior Coal Company LLC v. Stoud (pdf) offers an illustration of one such exception.
This case dealt with a worker who was driving his own vehicle to work and who turned onto a private access road leading to Cardinal Mines. This road was owned by his employer, used exclusively by the company, and was part of the company's operating premises. While driving on the access road, the worker fell asleep, drove off the road, and hit a tree, sustaining a neck injury. The employee filed a claim for benefits, which his employer denied, stating that the employee's injuries were not caused by employment and that "falling asleep was a substantial deviation from the employment." However, an Administrative Law Judge determined that the worker was indeed eligible for benefits and this decision was upheld by the Court of Appeals. The employer subsequently appealed to the Supreme Court of Kentucky, where the prior decision for compensability was upheld.
In finding for the employee, the court noted the exception to the going and coming rule when an injury occurs on an employer's operating premises:
"The theory for the exception is that coverage should apply when an injury arises from a peril that is related to the employment, regardless of whether it occurs at the actual worksite. Consistent with the theory, an injury that occurs while the worker is on a personal mission that substantially deviates from the employment is not viewed as being work-related even if it occurs on the employer's operating premises ... But an injury is compensable if the worker is engaged in normal coming and going activity at the time it occurs and has access to the place where it occurs because of his employment.
In this case, the court did not see falling asleep as a sufficient deviation from employment.
Other common exceptions to going and coming rule
Workers comp has many gray areas and every state has different laws. Even when states have similar laws, courts can interpret them very differently. The following are common exceptions to the going and coming rule, but you should check with the law in your state.
- Salespersons, visiting nurses, and other workers who spend a great deal of their time on the road or on call. Because travel is an integral function of the job for these employees, and because they do not operate from a fixed locale, they are often exempt from the going and coming rule.
- Supplied transportation. When an employer supplies a vehicle or pays for transportation, any injuries tht occur are often found to be compensable.
- Business travel away from home. Courts are generally liberal in determining compensability for accidents occurring during business travel away from home. Injuries that occur during recreational pursuits or other activities may be deemed compensable while traveling away from home, even if these activities would not be deemed work-related at home.
- Driving in a "zone of danger" or an area of special hazards. Such a situation might occur if an employee has to drive through a particularly dangerous area, such as a blasting zone or construction site, to get to work.
- Dual purpose. An example of this would be an employee who is driving home from work and performing an errand for the employer on the way. If the employer is deriving benefit from the employee's actions, any injuries that occur may be compensable.
Compensability: Driving "To and From"
Compensability: Deviation From Employment and "Personal Comfort" Doctrine
Extreme Commuting: Not Exactly the Sporting Life
Course and Scope: A Case of Flag Waving
Where the Rubber Meets the Road: Risk Management for Employees Who Drive
Inside the Doctor's Brain
The Insider is intrigued by the decision-making process that leads a doctor to prescribe a particular drug -- say, oxycontin, a potent and addictive pain killer -- as opposed to some other medication for a work-related injury. Oxycontin was orignally developed for the extreme pain of cancer but quickly migrated to an almost routine use among workers with strains and sprains. Who got inside the doctor's head to reach for the more potent and more dangerous medication -- and how did they do it?
According to a fascinating article in today's Wall Street Journal by Scott Hensley and Barbara Martinez (available by subscription only), the path to a doctor's brain is at least in part through his stomach. Drug companies are sponsoring luncheons at fancy restaurants, where a trained doctor leads a discussion on a specific medical condition that requires pharmaceutical intervention, just possibly a drug manufactured by the company picking up the tab for the lunch.
The doctor who leads the luncheon discussion has been trained by the drug company in the efficacy of a given medication for a specific condition. The article cites one luncheon focusing on "sinus headaches." The lead doctor advises his fellow docs to consider the possibility that the condition is really a migraine. While he does not specifically recommend the sponsoring company's product for migraine, he has definitely planted a seed that may sprout the next time a patient complains about sinus headache.
Doctors are paid a fee to attend training sessions sponsored by the drug company. They are also paid for each "educational session" which they run. The fees do not appear to be huge -- in the range of $750 to $1,200, but some doctors were supplementing their income to the tune of $60,000+ per year. It's important to note that the participating doctors insisted that they are not flacks for the drug companies -- they say that they answer questions at these sessions honestly and candidly. In the example of the migraine headaches above, the lead doctor mentioned the availability of generic medications,in addition to those made by the sponsoring company.
In 2004, there were 237,000 meetings involving doctors presenting to their fellow docs. By comparison, in the same year there were 134,000 meetings involving a salesperson presenting to doctors. Which was more effective? The return on investment for the presentations involving a doctor was twice that of the other sessions.
Drawing upon documentation involving pending litigation, the article states that
increased use of Vioxx can be traced directly to doctor seminars. Doctors who attended a lecture on Vioxx on average wrote $624 more in Vioxx prescriptions than those who did not attend. For doctors attending a more intimate group, such as the above luncheons, the increase was $718. By contrast, doctors attending a lecture by a salesperson only wrote $166 more in Vioxx prescriptions. It does not take a lot of imagination to track the rise in Vioxx use, from one lecture hall to another, from one luncheon to another. The road to the proliferation of Vioxx was paved one menu at a time.
To those of us on the outside, medicine appears to be an exact science. As patients, we certainly hope it is. But to the front-line practitioners, it can be far from exact, a world of intense time pressures, full of puzzling symptoms and inordinate urgency. Faced with these pressures, a treating physician may well rely on the advice he heard while consuming grilled salmon with mustard-dill sauce.
For a fascinating summer read, I highly recommend Complications, written by Atul Gawande, a surgeon who is also a fine writer. The book will help you appreciate the uncertainties of medicine and give you a little insight into what goes on inside a doctor's brain.
Janitors: The Big Squeeze
Most of us react in horror when blatant safety and health violations are reported in the media. But we have a tendancy to close our eyes when the violations impact our own bottom lines. Sure, the working conditions in China are appalling, but when it comes to buying party favors for my child's birthday, I don't want to spend too much money. So I'll head to Walmart, where the costs are low, low, low -- because they put the big squeeze on their oversees vendors and on the sales associate who rings up my purchase.
This is not just a problem with Walmart. What about the people cleaning your office building, or your local supermarkets? In some parts of the country, serious labor violations are commonplace among the janitors and cleaning staff, who all too often are illegal immigrants, in such fear of deportation that they hesitate to complain about their appalling working conditions.
In an article by Steven Greenhouse in the New York Times (registration required), the shocking realities of cleaning work are made crystal clear. There are about 2.3 million janitors in this country (a somewhat dated BLS study can be found here). Some belong to unions, are well paid and receive good fringe benefits. But for the majority, there are unfair and unsafe working conditions. Some cleaners work 16 hour days, 80 hour weeks. Their employers pay them under two names, in order to avoid paying overtime. Sometimes the employers classify their people as "independent contractors" -- a blatant and widespread ploy that has become increasingly prevalent in a number of industries. Many cleaners are paid $3.50 an hour -- well below the minimum wage, but because they are here illegally, they are afraid to protest.
Low Bids = Big Squeeze
The article points out that the big squeeze starts with building owners, who want to lower their costs. So they award cleaning contracts to the lowest bidder. In doing so, they don't ask too many questions, such as how many hours do your people work and how much do you pay them? In March, Walmart paid an $11 million fine after 350 illegal immigrants cleaning Walmarts were arrested in a sweep across 21 states. Another suit against Walmart claims that their contractors employ thousands of immigrants, who are forced to work 7 nights a week without proper payments. Of course, Walmart says that it is unaware of any violations -- such matters are left to the contractors. Also left to the contractors is figuring out how to make a profit after lowballing the bid to get Walmart's business.
In a number of postings, the Insider has praised UPS for its strategy of hiring drivers and paying good benefits -- in contrast to FedEx, which calls its drivers "independent contractors." So we were a little surprised to learn in this article that Contract Cleaning Maintenance, the company hired by UPS at its Chicago area sorting center to clean the building, calls its employees "independent contractors" and pays them accordingly: no overtime, no limits on hours worked, no week ends off. A lawyer for Contract Cleaining claims that the IRS once ruled that the company's janitors were independent contractors for tax purposes. "It shows that these companies have been run in compliance with at least some administrative authorities." Yeah, right! And of course, UPS denies any knowledge of improper activities.
Due Diligence in Selecting Vendors
I humbly recommend that companies incorporate fair labor standards into their bidding process. It's deceptive and unfair to squeeze your vendors to the lowest possible price, and then claim ignorance when they abuse their workers to generate their profits. To be sure, the cost of doing business will go up if everyone is paid a fair wage. If janitors are paid fairly, the rents may have to go up. So be it. The Big Squeeze may make billionaires out of a few, but as a business strategy it's morally bankrupt. We can certainly do better than that.
Workers comp meets Internet radio and TV
If there’s one thing that the web is good for, it’s uniting people with niche interests. When we first embarked on a workers comp weblog, we hoped there would be some interest in the topic but we weren’t quite sure what to expect. As we near the two-year mark, we’ve been gratified by the response and pleased that some other interested parties have thrown their hats in the blog ring, too. We welcome that – there are a lot of stakeholders in this matter – employees, employers, physicians, insurers, TPAs, attorneys, unions, safety professionals, case managers, claims adjusters, and regulators, to cite a few. Public dialogue and information sharing in what was intended as a no-fault system can only be healthy for us all.
In terms of workers comp web pioneers, we'd be remiss if we didn't give a shout-out to the folks at workerscompensation.com who provide a variety of free services to the workers comp community, including some rich media offerings. They feature a Newsline Week in Review Video Report every Tuesday, as well as streaming interviews available through Comp Talk Radio. We also frequent their daily news aggregation service. They provide many excellent resources and we're big fans.
Now, we note with interest that friend and colleague Alan Pierce is jumping onto the rich media bandwagon by hosting an audio show on workers comp legal issues on the Legal Talk Network. Alan is a respected plaintiff attorney in Massachusetts where he has served as a member of the state's Workers' Compensation Advisory Council. I first met Alan in his capacity as an author of a regular column on workers compensation case law for The Journal of Workers Compensation, a publication that I edited for several years. (Self disclosure - I still serve as a part-time editor for Standard Publishing Corporation.)
The workers comp segments run for about 30 minutes on selected topics and include both a guest expert and a case of the day. Segments are free, although there are prominent ad breaks within the segments. Shows can be downloaded or listened to in streaming format. There are three segments posted thus far: sick building syndrome, ethics, and professional sports injuries. As might be expected, the discussion has a plaintiff viewpoint.
I particularly enjoyed the segment on sports injuries. Also, any prospective attorneys that might be considering workers comp as a practice area or any employees looking for legal representation might find that the segment on ethics provides a good overview of legal competencies necessary for a workers comp attorney. We wish Alan well and will be checking in on future segments. Our legal readers - particularly trial attorneys - may be interested in other legal topics available at Legal Talk Network.
Blowing the Roof Off Workers Comp
If you were to guess where you would find the most demand for roofing services, you might start with Florida. After all, the state was hit by four hurricanes last year and has already suffered from Hurricane Dennis this year. Big winds blow off the roof, right? So you might assume that Florida is great place to be a roofer. Think again.
According to a recent article in the Insurance Journal, fully 60% of the roofers working in Florida fail to carry workers comp insurance for their employees. Since the four hurricanes blasted Florida last year, the cost of replacing a roof there has doubled. But if you follow the money, you won't find a lot of it going into workers comp premiums or into the hands of roofing workers. The state recognizes the problem, but with only 71 inspectors and over half a million job sites, the odds favor the uninsured contractors. (By the way, the comments attached to this article are well worth reading.)
Across the country, roofing remains one of the highest cost classifications for workers comp. In most states, the manual rates run between $38 and $50 per hundred dollars of payroll for comp coverage -- compared to about $15 per hundred for a carpenter. It's not hard to see where the high rates come from. The working conditions are always difficult. It's usually either too hot or too cold. There is a lot of lifting and climbing. You are always working at dangerous heights, often perched at precarious angles. The fall protection is minimal. When roofers get hurt, the injuries tend to be serious. When you combine these high risk factors with the serious premium avoidance prevalent in Florida (and other states), you have a recipe for major underfunding of the exposure. As is too often the case, the good guys end up paying the price: not only are insured contractors at a disadvantage in the bidding process (their costs are higher), they end up subsidizing the uninsured contractors through the higher rates they pay for workers comp.
The only fair solution is to make sure that every contractor carries insurance for his or her employees. For readers who track the Insider's coverage of related issues, we've been here before: in the conundrum of "independent contractors" versus employees. Once again, it's a matter of who pays the benefits, who pays the premiums and who is able to avoid paying for insurance.
We can only speculate why so many roofers are uninsured in Florida. Let's assume that insurance adjusters include a fair wage and full insurance when calculating the cost of repairing a damaged roof (admittedly, this may prove to be a dubious assumption!). The insurer cuts the homeowner a check for the work. It's then up to the homeowner to find someone to fix the roof. With such great demand due to the widespread damage, it may not be easy to find anyone willing to take on the job, let alone more than one bidder. Again, assume the homeowner is able to find two potential contractors. The one with a fully insured workforce provides a bid that is 35% higher than the uninsured contractor. Even if the higher bid is within the insurance company reimbursement, the homeowner will be sorely tempted to go with the lower (uninsured) bidder and pocket the difference.
As is often the case, the incentives for doing the right thing may be misaligned. The contractor who insures his workers faces substantially higher costs of doing business. On the other hand, the uninsured contractor has a nice margin to play with. As one contractor quoted in the article states, his workers didn't need insurance because they are all illegal aliens anyway! The buck spins around in the eye of the hurricane and the losers, ultimately, are the hard-pressed, underpaid workers who struggle to fix the damage that nature -- and man -- have wrought.
Weblog roundup: safety, market dynamics, scandals & more
I'm just back from a 10-day vacation jaunting around Quebec, Maine, and Cape Cod. I am suffering from that addle-pated fuzziness that so often occurs on work re-entry, so in this foggy state, I quite enjoyed Michael Fitzgibbonï¿½s post about vacations at Thoughts from a Management Lawyer. He presents some interesting factoids: "30% of employees do office-work during vacation" and "32% of paid vacation time is spent doing non-vacation activities." I assure you, none of this was true in my case. In fact, I totally eschewed any use of the computer whatsoever during my travels and it wasn't as bad as I feared. The facial tics are barely noticeable today.
I've had quite the day catching up on some of my favorite blogs. Here are a few items of note:
Your people are your brand. Check out Fostering a Loyal Workforce at Trader Joeï¿½s - a good study on an employee-friendly company and the way your employment practices translate to your customers and help build your brand. (Via The HR Blog)
Worker safety. As usual, Jordan Barab covers a number of important bases at Confined Space. In his post Tell Congress Not To Weaken Worker Protections he details pending legislation that would further erode employer responsibility for worker safety. And in Work Hard, Die Young he graphically reminds us of the mandate we have to protect young and inexperienced workers. This is a follow-on to a prior post when he reports on a study naming the five most dangerous jobs for teens:
1. Agriculture: Fieldwork and Processing
2. Construction and Work in Heights
3. Outside Helper: Landscaping, Groundskeeping, and Lawn Service
4. Driver/Operator: Forklifts, Tractors, and ATVs
5. Traveling Youth Crews
This posting is well worth a visit, Jordan has linked to a number of safety resources for teen workers.
Construction industry safety. A recent study reports that scaffolding, and fall prevention top the list of construction violations in New York: "A review of more than 2,500 OSHA construction site inspection records in New York from 2003 found that nearly one-third of all OSHA construction violations in the state were of OSHA's scaffolding or fall protection requirements - more than for any other standard." (via rawblogXport).
Market dynamics. At Managed Care Matters, Joe Paduda explains the dynamics of hard and soft commercial insurance markets and predicts that although workers comp is in a soft market now, the continual rise in medical costs make it unlikely that buyers will enjoy the pricing advantages for as long as the last soft market. And if I may insert one cautionary note to employers here: in the cheap pricing of the mid to late 1990s, we saw many employers relax in their efforts to prevent and control losses only to suffer blowback when the market tightened. With workers comp, no matter what the vagaries of pricing, there is only one meaningful goal: reducing losses to the lowest possible level by preventing injuries from occurring, and providing the best medical care to foster the earliest recovery for any injuries that do occur.
Employment law: Michael at George's Employment Blawg has a good update on background checking during the hiring process. It includes some answers to frequently asked questions such as whether you should be conducting checks on employees, and if so, on whom. It includes some good pointers in the types of questions should you ask former employers when checking references.
Employee or independent contractor? We've talked about how the murky status of contractor versus employee can wreak havoc with comp claims. B. Janell Grenier at Benefitsblog posts on worker classification and other problems occurring with long-term disability claims that fall under ERISA. To illustrate this, he cites the rather interesting case of Ruttenberg v. United States Life Insurance Company, involving a commodity trader who suffered disability by way of losing his voice. The ensuing legal wrangle was waged on several fronts, but a key issue revolved around the plaintiff's status - employee or independent contractor? In trying to make the case that the trader was not covered because he was not an eligible employee, the court disagreed, stating that:
The inclusion of form 1099 in defining the contractual term "employee" thus indicates that the term includes more than just common law employees, and that other workers may be eligible under the policy. Those other workers may include independent contractors like Mr. Ruttenberg, but the scope of the contractual term is ambiguous. . . Allowing Mr. Ruttenberg to purchase insurance for which U.S. Life now claims that he is ineligible constitutes the type of "trap for the unwary" that contra proferentem is meant to prevent. The district court correctly found the term "employee" to be ambiguous, and properly construed the term against the policyï¿½s drafter, U.S. Life.
Hmmm, if the trader is considered an employee for these purposes, wouldn't that open the possibility that his disability should be covered by workers compensation? Isn't that the exclusive remedy for any work-related injuries that befall employees? I am not a lawyer, perhaps an attorney could weigh in on this.
Ohio BWC coingate. In checking in with our workers comp scandal du jour, things are still fairly hot in Ohio. Last week, a firm was fired after losing $71 million of the Bureau of Workers Comp's funds. This followed in the wake of other investment losses: $215 million in an unregulated offshore hedge fund, and up to $13 million in a rare coin venture. This seems to go beyond mere bad judgment and into the realm of political cronyism and influence peddling. Stay tuned on this one - it doesnï¿½t look like it's over yet.
Workers Comp Drugs: Paying too much...For the Wrong Medicines!
We have long been intrigued by a number of conundrums relative to drug prescriptions in the workers comp system. Why are exotic brand name drugs prescribed so frequently, when effective generics are readily available? Why are doctors so quick to adopt "off line" uses for exotic drugs, endorsing unconventional applications for very expensive medications? What accounts for the remarkable success of pharmacy companies in getting doctors to do what they want them to do? And why do insurers simply pay the bills, without asking doctors the rationale for what appears to be a very odd and problemmatic decision-making process?
Paying Too Much...
Our esteemed colleague, Peter Rousmaniere, principal of Rousmaniere Associates, has delved long and deep in these issues. He has two intriguing articles in the current issue of Risk and Insurance (available here). In the first article he presents a study done by a Cleveland area Pharmacist, Phillip Parsons, in conjunction with the Ohio State Fund and Archestral, a data analysis firm. They analyzed a number of prescriptions written in Ohio, Michigan and Pennsylvania. The study found that of the total $179 million in payments for the two million prescriptions, about $25 million were questionable. Overall, 20 percent of prescription payments contained at least one error.
Among the problems uncovered were:
8 percent to 15 percent of drug purchases conflicted with the compensable diagnosis.
7 percent to 10 percent of prescriptions were for brand names when generic substitutes were available.
As many as 11 percent of prescriptions were incorrectly priced.
All told, about 9 percent of prescriptions, or $16 million of total paid prescriptions, had no evident relationship to the work injury. For example, payments were made for Lotrel, used to reduce high blood pressure, which would rarely be appropriate for treating a work-related injury.
A second major type of error was failure to price the drug at the lowest available price. In all, about $4 million, or about 2 percent of total payment, was due to incorrect pricing.
Perhaps the most alarming finding of the study is in the area of painkillers. Exotic brand-name drugs were routinely prescribed, rather than less expensive generic equivalents. Paying for brand names added $11 million, or 6 percent of total payments. Beyond that, the study found that the ratio of brand to generic purchases was significantly higher for the more powerful pain medications, such as Oxycontin. In one egregious example, $12,000 was paid for one year of Oxycontin, for a 1990 workers' compensation claim of "neurotic depression." Yikes!
For all cases with both brand and generic alternatives, 8.6 percent of generic opportunities were missed. For pain medications, 12 percent of generic opportunities were missed. For the federal Drug Enforcement Administration's "schedule II" pain drugs – those with highest known abuse– more than 20 percent were brand instead of generic. I suspect that this one study is truly indicative of a national problem.
The Wrong Medication...
In a second article, Rousmaniere explores what may be an even more important issue: the heavy reliance of the medical community on pain killers to treat work-related injuries. Rousmaniere cites the treatment guidelines of the American College of Occupational and Environmental Medicine, which state: "Pain medications are typically not useful in the subacute and chronic phases [of injury] and have been shown to be the most important factor impeding recovery of function." [Emphasis added.] Get that? Pain medication slows down recovery! And in the world of workers comp, slower recovery translates into significantly higher costs.
The article goes on to challenge readers to analyze the root causes of over-medication. Rousmaniere offers a long menu of interesting options for getting control of pharmacy costs. The menu includes:
Aggressively enforce generic substitution rules; promote the availability of drug-detox vendors; screen for possible illicit usage and refer cases for investigation; promote among employers substance abuse/EAP services; contact high-volume pain-med-prescribing doctors to discuss treatment philosophy; promote alternative, non-drug-focused treatments for chronic-pain issues; require prior approval and peer review of all narcotic prescriptions ongoing for more than 90 days; require claimants receiving narcotics to participate in a drug education program; and promote pain-management treatment guidelines.
There is plenty of food for thought here. It's not only a list of what needs to be done, but it raises the issue of who should do it. Pharmacy management has become an industry buzz word. Everyone seems to be doing it, but are they doing it effectively? Are we really getting to the core issues: too many doctors are routinely prescribing expensive, highly addictive medications for work-related injuries. The entire medical community is relying much too heavily on pain medication to solve problems. To put it bluntly, we appear to be paying too much for the wrong medications. And that's certainly no prescription for success.
TRIA: Terror and Risk Transfer
This morning's alarming news about terror attacks in London triggers some melancholy
reflections on the way public policy evolves and the way society tries to cope with the unprecedented risks of the new milennium. At this time it appears that about 40 people have been killed and well over 300 have been injured in coordinated attacks on the London transport system.
The attacks come at a time when this country is reconsidering its own underwriting of terrorist exposures. Following the 9/11 attacks, congress implemented the Terrorism Risk Insurance Act (TRIA) of 2002, a risk sharing approach to terrorism. The legislation came with a sunset provision and is scheduled to expire at the end of this year. It appears that the administration is not inclined to renew the act, at least in its current form. An article in the online Insurance Journal indicates that Treasury Secretary John Snow does not think the insurance in its current form is needed. After today's news of the devastating attacks in London, when the abstract risks are no longer abstract, when all the security measures that appeared to have been working are suddenly shown to be ineffective, the administration might have to reconsider its position.
Secretary Snow says that continuation of the program in its current form is likely "to hinder the further development of the insurance market by crowding out innovation and capacity building." (These are code words, but I'm not sure what the code is!). He goes on to say that "consistent with its original purpose as a temporary program scheduled to end on December 31, 2005, and the need to encourage further development of the private market, the Administration opposes extension of TRIA in its current form." (The private market begs to disagree, as you will see in their position statement here.)
Snow goes on to cite the conditions that should be considered for any type of
anti-terrorism insurance going forward: "Any extension of the program should recognize several key principles, including the temporary nature of the program [Does the Secretary see a pending end of terrorism's threat?], the rapid expansion of private market development (particularly for insurers and reinsurers to grow capacity), [is capacity growing or shrinking? Is the increased cost of reinsurance increasing capacity or simply making current capacity more expensive?] and the need to significantly reduce taxpayer exposure." [To reduce taxpayer exposure, you must increase exposure somewhere else -- in this case, in the private insurance market and its business customers.]
Who's Covered? Who Pays?
In the world of insurance, it ultimately comes down to who is covered and who pays the bills. The administration seems comfortable with transferring risk away from taxpayers and into the private sector. Private insurers, in turn, will ask their actuaries to calculate the potential exposures (no easy task) and will then try to pass the added costs along to their customers. But which customers will be willing to pay? For insureds living in high risk areas, business owners are very likely to opt for terrorism coverage. But what about the machine shop in Leominster MA? Or the Midas Muffler franchise in LaGrange GA? The fact is, the vast majority of businesses are likely to decline coverage, because we all seem to think that most of the risk resides in the big coastal cities. That leaves the burden for coverage on a relatively small number of businesss: their costs will go through the roof, while the costs for everyone else will stay pretty much the same.
James MacDonald, in the John Liner Review, presents a cogent and well written argument for continuation of TRIA here. It's part of a very informative web summary produced by BNA, and which tracks the entire TRIA reauthorization process, available here. The extension of TRIA is about to take center stage in this country's struggle to establish a smoother footing for the economy in the post 9/11 era. As flight attendents tell us when moving toward turbulence, "for your safety and comfort, fasten your seatbelt and remain in your seat." Turbulence ahead, indeed.
Cell Phones and Driving: Headsets are Cheaper (But Not Safer)
Going back to July 19 of 2004 the Insider has been tracking the dangers of cell phone use while driving. There are currently over 190 million cell phone users in the United States, compared to a mere 4.3 million users back in 1990. There is a lot of research going on and a fair amount of anecdotal information, but there's still a lot that we don't understand about the specific risks posed by driver cell phone use. Here's what we know: the use of cell phones while driving is definitely a distraction and in many situations a serous danger. States and municipalities are increasingly requiring that drivers use hand free technology (headsets), even though the research shows little or no amelioration of risk when such devices are used. In other words, headsets might not be safer, but given the increasing risk of citations from local police, they might well be cheaper than holding the phone to your ear.
Chicago and the Nation
The city of Chicago has a new ordinance on cell phone use while driving that goes into effect on Friday. Under the ordinance, passed by the City Council in May, drivers using their cell phones without headsets are subject to a $50 fine. If they are in an accident while talking without a headset, the fine goes up to $200 (although it is not clear to me whether you have to prove that cell phone use contributed to the accident). No one seems to know whether Chicago's finest are going to pursue chatting drivers with any degree of determination. But in any event, the ordinance has proven a tremendous boon to local commerce, which is selling headsets like the proverbial hotcakes.
Across the country, four states have banned the use of cell phones by young drivers: Colorado, Delaware, Maryland and Tennessee. I think limiting cell phone use among novice drivers is a good idea, even though it will undoubtedly prove difficult to enforce. Connecticut recently passed a law requiring the use of headsets and the governor is expected to sign it into law, thereby joining other states with similar requirements -- New Jersey, New York and the District of Columbia. Even though headsets have not been proven to reduce risk, legislatures seem willing to require them, in the attempt to at least "do something" about a wide spread problem. For an excellent summary of the current status of cell phones and driving, we heartily recommend this summary from the Insurance Information Institute.
The Insider has cautioned that businesses may be liable for accidents involving employees on cell phones -- whether they are using headsets or not. The California Association of Employers has gone so far as to recommend that employers have cell phone policies that require employees to pull off the road before conducting business by cell phone. Such policies are likely to be unenforceable, but might offer a line of defense against liability claims, should the chatting employee cause an accident.
There have been several multi-million dollar settlements by employers whose employees injured others while talking on the phone. There will be many more to come. The only iron clad defense for the employer would be an outright prohibition of the use of cell phones while employees are driving. I don't expect to see many employers take that drastic (and potentially counter-productive) step. In the meantime, employers need to focus their attention on the ubiquitous cell phone, yet another new technology we cannot live without, even as the little device gives rise to a new dimension of risk in the working world.
Insurance Fraud: A is for Arson
High school chemistry teacher Tramesha Lashon Fox, 32, had a problem. Her 2003 Chevrolet Malibu was a bummer to drive, so she went out and bought a 2005 Toyota Corolla. Unfortunately, she still owed $20,000 on the Malibu. So she concocted a plan to get rid of the unwanted car: she recruited two of the worst students in her class (both were failing) to steal the car and burn it. At first they thought she was joking, but she persisted. On May 27, the last day of school, the students took the unlocked 2003 Chevrolet Malibu from a shopping mall, drove it to a wooded area and set it on fire. In return one received a grade of 90 on the final exam and the other 80. (I cannot help but wonder if the latter student complained:"Hey, how come I only got a "B"?)
This appears to be a fairly mind-boggling example of insurance fraud. Not only does a teacher abuse her position by recruiting her own students to perform a criminal act, she rewards them in a way that profoundly comprises her position as a teacher.
Where the Money is
The notorious bank robber Willie Sutton, when asked why he robbed banks, replied "because that's where the money is." Read the FBI's brief but pungent profile of Sutton's life here, and take note that at the end of his life Sutton was released from prison and endorsed a bank! (As they say in America, there's no such thing as bad publicity!)
For some people, insurance is simply "where the money is." The Insider recognizes that fraud exists and that it costs a lot of money. In workers comp, the opportunities for fraud arise in a number areas:
Employee fraud: outright faking of an injury -- which we think is relatively rare, although there are pros who are skilled at exploiting the system. The more significant problem is malingering -- employees with legitimate injuries who stay out of work far longer than the injury requires or for whom disability becomes a way of life.
When you "follow the money," fraud in workers comp is not generally flowing toward employees, but to other key players in the system:
Employer fraud: not securing comp coverage for employees; misclassifying employees; using "independent contractors" instead of employees; under-reporting payrolls; asking employees to file work-related injuries under regular health insurance.
Doctor fraud: billing for unnecessary services, billing for more expensive procedures than were provided or most blatantly, services which were never provided. .
Lawyer fraud: coaching employees in phony or exaggerated symptoms (they keep a supply of neck braces and crutches in the closet). Sending employees to colluding doctors, who perform unnecessary services and share the procedes with the lawyer.
State administrator fraud (did someone say "Ohio"?): misappropriating trust funds to benefit the politically connected.
This is not an exhaustive list. Here's an interesting website devoted to insurance fraud, complete with a year by year "Hall of Shame": you click on the jail cell and read the story of someone who got caught. She's innocent until proven guilty, but I wouldn't be surprised to see Tramesha Fox secure her own little cell in the 2005 archives and her own special place in the history of insurance fraud.