With the nation�s legislative landscape dominated by health-care reform and relatively stable workers� compensation rates in 2010, Workers� Comp fell off the radar screen. Yet, a more careful review points to challenging times in the years ahead. Here are some factors to consider.
1. Declines in frequency of claims slowing. According to insurers, the long-term trend of declining claims frequency (claims filed per employer payroll) is flattening. This is significant because declining trends that started in 1991 have helped counter rising medical costs driven by the severity of claims and increased utilization.
It’s too early to determine the reasons or permanency of the shift and it could be a temporary blip caused by employers cutting back on safety initiatives. On the other hand, a strengthening job market could mean hiring employees who are less experienced and more prone to injuries.
2. Injured employees are staying out of work longer. The National Council on Compensation Insurance notes that workers comp payers are funding temporary total disability benefits longer. NCCI Director John Robertson attributes this to economic conditions, including fewer return-to-work opportunities. The benefits of employee retention and reduced costs of a return-to-work program are valid regardless of economic conditions. However, the recession has made it difficult for some to place injured workers in transitional positions when the company is laying others off. In other cases, injured workers have returned to transitional jobs, only to be laid off for reasons unrelated to the injury.
Faced with few job prospects, the employees have little incentive to get well. In fact, there’s a disincentive to get well, and employees staying home leads to higher reserves that are expensive for the employer to support. Dr. Richard Pimentel, a national expert on disability management, notes that the savings of turning an indemnity claim into a medical-only claim can be significant, and 20% of lost time from work injuries could be eliminated if the physician was given sufficient information about the transitional job possibilities.
It simply makes good economic sense to return injured employees to work as soon and as safely as possible.
3. Medical costs continue to rise.According to NCCI, the medical costs of lost-time workers comp claims continue to grow at a faster rate than the medical consumer price index and now represent 58% of claims. An important study, “Impact of Cost Intensive Physicians on Workers Compensation,” by Edward Bernacki, MD, and his team at Johns Hopkins, appeared in the Journal of Occupational and Environmental Medicine in January 2010.
Using five years of closed claim data from the Louisiana Workers Compensation Corp., the team studied claims that began with reserves less than $15,000 but migrated to reserves of +/-$50,000. Of those claims, 3.8% of physicians involved were responsible for 72% of the costs. The numbers clearly demonstrate that “cost-intensive physicians,” those who have higher medical costs, longer medical treatment durations and longer claim durations, mean higher indemnity costs.
The Bernacki study also noted that injury types or diagnoses that don’t have clearly defined treatment pathways could easily lead to higher costs. Where a fractured tibia has a predictable treatment path, injuries of joints and back strains do not, leaving a wide berth of treatment options and opportunities for abuse.
While the adoption of evidenced-based guidelines has gained ground, many job-related, health decisions are still made by health-care professionals without appropriate training in occupational injuries.
In 2010 TheAmerican College of Occupational and Environmental Medicine published “A Guide to High-Value Physician Services in Workers’ Compensation - How to find the best available care for your injured workers.” The guide offers suggestions for finding physicians who provide care for everyday, uncomplicated injuries, as well as physicians who provide specialized medical services addressing catastrophic injury or administrative tasks required by the workers comp process.
4. Safety and wellness begin to integrate. While it’s reasonable to postulate that healthy workers are less prone to injury and, once injured, recover more quickly than their out-of-shape co-workers, corporate silos have typically separated risk management departments from benefits management. New research, an aging workforce, court cases, tight budgets and anxiety over health-care reform are causing employers to recognize the relationship between safety and wellness.
The recent “Obesity 2010 NCCI Research Brief” confirms that work-related injuries are far more costly and more likely to result in permanent disabilities if the injured worker is obese. Court rulings have required weight-reduction surgery before treatment of work-related injuries. Furthermore, studies have shown that older workers have fewer injuries than their younger counterparts, but when injured, they take longer to heal.
In addition to assessing how jobs can be modified to accommodate older workers, employers are looking at wellness programs as a way to keep employees healthy.
5. OSHA is everywhere. With increased funding, additional staff and a vigorous agenda, OSHA significantly increased its enforcement activity, as well as fines, in 2010. The National Safety Council noted, “While the list of OSHA’s Top 10 most frequently cited violations remains mostly unchanged, the agency’s message of strong enforcement is clear.” For the first time since publishing the annual OSHA Top 10 feature, each of the 10 highest penalties issued in a fiscal year exceeded $1 million. This stepped up agenda is expected to continue in 2011.
6. Litigation swells. While workers comp was founded in part to avoid litigation between employers and employees, litigation is very much a part of the system. Moreover, the Equal Employment Opportunity Commission was on pace to set another record in 2010 because of the expanding legal environment, including ADA (Americans with Disabilities Act) amendments, GINA (Genetic Information Nondiscrimination Act) and the Ledbetter Fair Pay Act.
The Cambridge, Mass. Workers’ Compensation Research Institute published a valuable study in 2010, “Avoiding Litigation: What Can Employers, Insurers, and State Workers’ Compensation Agencies Do?”The study found that workers were more likely to seek attorneys when they felt threatened. The study’s recommended actions included:
- Training supervisors to create timely communications that focus on trust, job security and entitlement to medical-care and income benefits.
- Communicate in a clear and timely fashion about the status of the claim to prevent misunderstandings so the worker does not mistakenly conclude that the claim has been denied.
- Eliminate system features that encourage denials or payment delays to help prevent worker’s misconstruing a delay as a denial.
7. Misclassification of independent contractors. Both federal and state agencies stepped up their oversight of the classification of independent contractors in 2010. In addition, the number of worker class-action lawsuits against employers relating to independent contractors rose 50% last year to a record 300, according to Garry Mathiason, vice chairman of labor law firm Littler Mendelson.
According to a USA Today article, “States, feds crack down on firms using ‘contract workers,’” the Dept. of Labor forced employers to pay $6.5 million in back wages to 5,261 employees in fiscal 2010, up sharply from $2.6 million owed to 2,190 employees a year earlier. States are also increasing enforcement, with about 20 passing laws in the past two years that make it easier to force employers to reclassify contractors as employees and seek unpaid taxes.
The government estimates that as many as 3.4 million workers are misclassified, costing the federal government $4.5 billion and states over $3 billion. With mind-boggling deficits, this is likely to remain a focal point in the years ahead.
8. Medicare Set-aside Arrangements are baffling many. All parties in a workers comp case have significant responsibilities under the Medicare Secondary Payer laws. The process is complex and confusing and has been a minefield for the parties involved. The recommended method is a Workers Compensation Medicare Set-aside Arrangement, which allocates a portion of the WC settlement for future medical expenses. Failure to give notice of a settlement to Medicare carries steep penalties. Medicare is also prohibited from making payments that are the responsibility of another party; hence, injured employees may be without Medicare if MSP issues are not dealt with appropriately at the time of settlement.
With the crushing need for revenue, more focus is likely to be placed on MSP compliance.
9. Telecommuting is changing the workers comp landscape. While telecommuting can be advantageous for both employee and employer, it poses challenges for workers compensation. Employees working at home can create exposures that do not occur in an office setting. Although employers have little control over home office design, they are charged with providing a safe and healthy work environment and must afford the same protection to those working at home as those working in the office.
More and more talented workers are looking for flexibility in their job choices. Telecommuting is here to stay, and employers need to know how to train remote employees properly to do their jobs safely and stay injury-free.
10. A new arena: social media and workers comp. In 2010, Facebook surpassed Google as the number one U.S. Internet site. While the connection of workers comp and social media is new territory, there was a successful New York case in September involving a worker’s Facebook posting that led to her arrest and conviction for stealing $8,975 in workers compensation. Employers and lawyers need the ability to navigate around social networking sites because they can provide a wealth of information about an injured employee’s behavior.
11. Uncertainty in the insurance markets. Economic conditions, low interest rates and decreased demand have put pressures on the workers comp markets. Liberty Mutual CEO Edmund “Ted” Kelly called the workers comp coverage currently being sold by insurers—already largely unprofitable while inflation is low—a “time bomb” that will become even more costly for insurers when inflation shoots up.
The CEO of American International Group commented on CNBC that AIG was going to be cutting back on its workers comp exposure due to some unrealistic marketplace pricing. While the soft market is predicted to continue in 2011, employers need to recognize that the seeds of the next hard market are being sown.
In fact, some states, such as Connecticut, are already seeing rate hikes. Some Connecticut employers will be hit with the largest average rate hikes in more than a decade, including increases potentially as high as 31%.
Where does all this lead? Perhaps the best way to put it is: “Workers comp is in play.” Whether it’s governmental agencies, insurance companies, employers or health-care providers, each is taking a closer look at this product in an effort to control costs.Preston Diamond is managing director and co-founder of the Institute of WorkComp Professionals, based in Asheville, N.C. In 2010, IWCP created a sister organization, the Institute of Benefits & Wellness Advisors, which trains, tests and certifies select insurance professionals to apply the concepts of risk management to benefits. He can be contacted at 828-274-0959 or firstname.lastname@example.org.