Tuesday, October 16, 2012

Same Sandbox: Digging Hole or Building Mound?

"Stakeholder" is generally defined as a person or group that has an investment, share, or interest in something, as a business or industry.

"Special interest" is in the dictionary as a noun, "a body of persons, corporation, or industry that seeks or receives benefits or privileged treatment, especially through legislation."

Stakeholder is used quite a bit when the topic of workers' compensation comes up, in particular when the issue of "reform" is discussed.

Generally most think of stakeholder in workers' compensation as groups that have the most at stake - i.e. employers and employees. Others refer to system vendors as stakeholders - medical providers, insurance carriers, and others.

And even the government has often been declared a stakeholder since without governmental intervention, administration, regulation and participation workers' compensation could not operate.

Special interest is also used when describing the politics of workers' compensation - generally in a derisive manner or with negative connotations.

In my opinion, at any given point in time, depending upon one's perspective or position on an issue, everyone is either a stakeholder or a special interest, and visa versa - the extent of one's stake in the system, and just how much one is holding, is dependent upon the issue at hand, and the relative interest one has with respect to that interest.

California's recent reform bill, SB 863, is a perfect example. Generally regarded as being negotiated solely between two stakeholders, employers and employees, to the exclusion of special interests, the bill is being postured by the Brown Administration and supporters as a monumental breakthrough towards bipartisan, non-special interest, democratization of workers' compensation.

In reality it is far from that - special interests negotiated SB 863 and most stakeholders were excluded from the discussions.

SB 863 was the product of discussions between Big Business and Big Labor only. There were no other interests represented at the table. And SB 863 clearly represents these interests.

Most of the talk about SB 863 concerns the claims management aspect of the new laws. That is appropriate since about 80% of the bill concerns claims via the medical system, adjudication system and indemnity provisions.

What about that other 20%? That is solely the purview of special interests: Big Self Insured Business and Big Labor. About 14% of all of SB 863 deals solely with self-insurance (primarily lowering the various financial thresholds for self insurance and eliminating mountains of regulatory burden), and another 5% deals with collective bargaining agreements and alternative claims adjudication.

Big Self Insured Business is representative of less than 4% of the total employer population in California. But it is a sizable market consisting of hundreds of millions of dollars of potential insurer-able interests.

Big Labor has a much larger share of the total employee population. Unionized employment is about 11 or 12 percent of the total working population in California, but most of that population can be characterized as public service unions - i.e. government workers (be they clerical, public safety, waste management, etc.).

Are the interests of Big Self Insured Business the same as the Small Employer? Apart from the desire to save money, not really, because HOW an employer saves money is directly tied to the resources available and the Small Employer simply does not have the resources that Big Self Insured Business does.

Case in point - SB 863 provides that permanent disability indemnity payments can be deferred if the employer offers a job to the injured worker at 85% or better pay, or the injured worker takes some other job paying 100% of pre-injury wages.

The Small Employer does not have the resources to offer return to work options. If a worker is off the job for 60 days due to an injury, and returns with restrictions that inhibit performance of the particular job that was left, the Small Employer must hire a replacement to THAT job, and won't have the financial resources to create some other job just for an accommodation.

Likewise, Big Labor can not appreciate the limits of the Small Employer and their employees. The available resources are much different, the circumstances of employment are not transferable and the rules of engagement don't transfer.

The State Compensation Insurance Fund (SCIF) has taken some criticism of late (including by me) for making a motion in the WCIRB's rate making committee to not increase rates at all, and then filing for a 7% reduction in rates. Insurance executives are particularly irritated with SCIF's move.

I have been giving this SCIF thing some thought. What's SCIF's mission? Carrier of last resort. It's prime market is the Small Employer because the Small Employer doesn't have the payroll to entice Big Insurance. If SCIF CEO/President Tom Rowe's comments about the insurance industry coming together to make SB 863 work are to be taken at face value, and I have nothing to believe that they shouldn't, then in fact SCIF IS accomplishing its mission by ensuring that Small Employers have a reasonably priced product.

SCIF is simply saying that their mission is to make sure that the small employer has something reasonably priced because Big Business took care of themselves and Big Labor made sure they were covered too. Big Insurance still has a very nice market to write - medium to large employers that don't want to self-insure.

What Big Insurance should be scared of is the lower thresholds that were created by SB 863 that make it easier to self-insure. If ever there was a threat to the insure-able market, THAT is it! To stay competitive with the new self-insurance reality Big Insurance is going to have to price right, and that is going to be a real task.

Speaking of special interests, the government also ensured that its special interests were covered by putting the cost of public entity self insurance off onto the insured market.

Labor Code section 3702.5 was amended to provide that the Department of Industrial Relation's (DIR) administration of public self-insureds is paid for out of the Workers' Compensation Revolving Fund. This used to be a General Fund expense.

That's like double taxation.

Yet no one makes a stink about that.

Benefits, medical treatment, indemnity - all of that is just speculation for the stakeholders that were excluded from the SB 863 bargaining table by the special interests (note that the WCIRB AGAIN changed its cost/savings estimate re SB 863).

So don't talk to me about stakeholders and special interests. We're all in the same sand box, and whether you're one or the other just depends on whether you're digging a hole, or building a mound.

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