Wednesday, July 25, 2012

Despite Costs Work Comp has Value

What it really all comes down to is value.

Is the cost of providing workers' compensation benefits worth it to employers for the protection against civil suits and some stability in the management of the risk of employee injury?

And is the cost of forgoing the right to a civil remedy worth it to workers for receipt of some guarantee of economic and medical protection?

The California Workers’ Compensation Institute released its report on self-insured employer losses July 19 which concluded that average paid indemnity at the first report increased 33% from 2005 to 2011, and average paid medical is up 51%.

2005 is a critical starting year for the measurement because it is the first full year after the Schwarzenegger reforms drastically reduced indemnity and introduced several medical cost constriction measures.

Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, said the analysis by CWCI shows that "despite what we may hear about how different payers administer claims differently, everyone is on the same page with respect to how they’re being affected.”

Total incurred losses at first report for self-insured employers increased to $619.6 million in 2011, up 4.2% from $594.8 million. Total incurred losses at first report in 2005 were $595.5 million. This doesn't tell the whole story.

In 2005 there were 106,569 claims reported, compared to 79,075 in 2010 and 77,386 in 2011. Thus, the average incurred loss per claim of $8,007 in 2011 was 6.4% higher than the average incurred loss of $7,522 in 2010 and 43.3% higher than the average incurred loss of $5,588 in 2005.

Azevedo told WorkCompCentral that, “We know costs are heading up, we just don’t know how much further they’re going to go up before we reach a breaking point. It may not be enough just to offset cost increases with any reform. Policymakers may need to do more if cost savings will work.”

Another way to look at the data is that while claims were down as a consequence of less jobs in California, particularly in the high wage, high risk categories such as construction, the economic recovery, albeit tepid, is going to increase payroll which impacts levels of indemnity.

Self-insured employers paid total wages of $79.7 billion to 2.2 million employees in 2010, compared to wages of $81 billion paid to 2.1 million workers in 2011.

California is in the middle of a negotiating period for a new reform wave which may be introduced this year, and if not then in 2013.

Mark Gerlach, a consultant to the California Applicants’ Attorneys Association (CAAA), told WorkCompCentral it might be necessary to identify more in savings than what is needed to pay for a benefit increase, and that is a key statement, for Gerlach underscores that workers' compensation is a political product.

When we look at it from the political prism it all makes sense. While opposing constituencies may argue about costs here, and increases there, when the pencil hits the spreadsheet the bottom line is that both business and labor continue to find value in workers' compensation otherwise the conversation would not be about costs and who pays for what. The conversation would be much more radical.

So I can only conclude that while folks may utter concern over costs in workers' compensation overall people are happy and that they find value in the system. If you're in one of the special interest groups facing regulatory or legislative cuts then you're not happy, but that's how it goes in the Grand Compromise.


  1. David,

    There has always been a tension between Labor and Management - don't get me started on Capital and Labor.

    It is a relationship that neither party (as a collective) have taken the time to think the whole process through.

    The tension exists because the issues haven't been thought out and (for both sides), it is an emotional rather than rational reaction to the realities.

    Frankly, it is the American Consumer, not the employer, that ought to be complaining about the costs of work comp. The employers (again, collectively) will simply pass the costs on to them. Yes, there will be employers that are better at doing that than others. Those that can't will be the victims of this Darwinan version of 'Survival of the Fittest'.

    I spent two days in an Life Spring seminar on 'getting your shit together'. The moderator kept saying, 'Your feelings don't matter, and it doesn't matter that you don't matter'. We had people in the room that were in a Rage - foaming at the mouth. They wanted it to be important that they mattered.

    Of all the really big problems out there, workers' comp is one of the least important. And, it isn't important that it isn't important. Employers already have all the tools in place to make this small piece of their daily activities better.

    Someone (you, perhaps?) needs to inform them of the realities and let them know they really are in charge. Unless, of course, they chose not to be.

  2. Alas Bill, I think that most employers choose not to be...

  3. With medical costs exceeding 60% of the losses paid, I would anticipate that is it a "when," not "if" situation, that will ultimately result in an overhaul of the system. The piecemeal attempts, or prototypes, just haven't cut it yet.

    Labor wants medical care for the employees that works and it not loaded with delay and litigation. How can you argue with that. The mechanism of an employer-based program with partial employee contribution is rapidly eroding. The universal system is a potential goal, but then the cost (including contribution costs) is problematic.

    As to Industry’s hot and cold love affair with the exclusivity of remedy provisions and indemnity payments, history has show that you just can't stop creative lawyers from filing tort claims. The asbestos epidemic continues to prove that as claims against the ultimate wrongdoers just propagate.

    David is correct. The system just doesn't deliver and met anyone's expectations, and only fuels collateral cottage industries that sap its lifeblood.

    In the end, what we have seen maybe not at all describe what we are going to get as a replacement.

    Gerry observantly reflects that alternative approaches have been offered with little interest on the state level. Likewise, the Federal government has, and continues to test, alternate compensation protocols without a definitive plan that makes everyone happy.

    Creative minds will necessitate invention of a program that works. Continued emasculation of the present workers' compensation really helps no one. Constructively participating in ideas to create a new system is a far better effort. I am optimistic that it will occur.

  4. Thanks for the comments Jon - thought provoking.

  5. Meanwhile, a recently passed 2% cap on property taxes significantly restricts the municipalities' ability to raise revenue to meet the cost increases, according to the report from the Public Employer Risk Management Assn. Inc.'s Workers' Compensation Policy Institute.
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