Friday, December 21, 2012

Last Post of the Year and Italian Moments

It's my last blog post of the year.

I was going to go out with a "bang," lots of fight, lots of pejoratives on whatever topic, person or process that I chose to pick on this morning; a vim, viger and vinegar type of thing.

There's no shortage of topics to go after, for sure.

There's the ongoing litigation between football players and their owners about where claims can be filed.

Texas report cards on carriers produced a surprise single poor performer.

North Carolina finally put some fee schedules in place but is still wrangling with dozens of other rules.

And the Pennsylvania Supreme Court said that because the Penn Transportation Authority is not a branch of the state it is not immune from suit under the Federal Employees Liability Act.

But, 'tis the season as they say.

I'm tired! It's been a long, long year, and I met my personal goal of posting something on topic (workers' compensation), hopefully with some artful argument, and hopefully thought provoking, every single business day, including days when I've been sick (I actually don't think there were any) and days when I was on vacation (not really vacation - just away from my desk; I have a hard time shutting down...).

Here's what I've learned:

There's a lot of people in the workers' compensation industry who truly care about how their state (or Federal) system operates.

There's quite a difference in opinion on how workers' compensation should work, or what could be done to make it better.

The differences in opinion may be colored by a person's position in the industry or with a particular company, but often when out of the constriction of authorized speech I've found that many opinions are actually quite similar.

People hate fraud, whether it is being perpetrated by a claimant, vendor or insurance company representative.

People hate disparate treatment of like-situated individuals or companies.

People disagree about how to control costs in workers' compensation but generally agree that overall costs are too high. Some disagree about whether costs are even an issue.

Some are excited about the potential for carve-out programs, work injury insurance plans, and other alternative work injury protection systems, but seem to be pessimistic about whether such alternatives could actually co-exist with traditional systems.

Mostly though I've learned that the single biggest value people cherish in this industry is the network of other professionals.

Workers' compensation has gotten so complex, so specialized, that the skills and knowledge necessary to successfully navigate the system, let alone actually run a business in it that can make a profit, are hard to come by. Whether you're someone looking for work, or someone looking for a person with the right set of skills and knowledge - there just aren't enough people to do the hard work. Our network is special because our industry is so unique - those outside the industry can not relate whatsoever.

When I started out in workers' compensation around 1984, the managing partner of the law firm I worked for told me that work comp was not glamorous, was looked upon with disdain by those who didn't know the law, but that it wasn't ever going away and that those who kept their skills and knowledge up would always be able to make a living.

I agree with that.

Workers' compensation, for all of its faults, is a necessary component to the stability of the economy.

The cost of workers' compensation in the grand scheme of things is not that much relative to the gross payroll insured. Compared to general health, the medical component of workers' compensation is just a drop in the proverbial bucket.

But the beauty of work comp is that there it reduces the friction between the production of products or services and the delivery of same. It's a fine mineral oil - not perfect for all applications, but generally good enough to get the job done.

I suffer from this Italian-emotion malady. My dad did too, and so did my grandfather - who immigrated to Ellis Island from Italy. We get weepy-eyed with any small sentiment or emotion that might provoke some liberal gene in our systems.

I guess that's why Italians are artists....

I get weepy-eyed thinking about our industry, about the millions of people that we actually do help get better from their injuries or illnesses, that actually do put their indemnity benefits to good use to get back into the work force and become helpful, productive citizens.

We tend to focus on the outliers in this business - the ones that we can't help, can't fix, or that won't ever be fixed. Those are the challengers and they escape our notion of good beneficial social repair.

But in reality, the outliers are a very small percentage of the gross numbers that this industry takes care of. These outliers make for great blog columns, but really, after I've thumped my chest and placed a few good adjectives or adverbs in front of inflammatory nouns and verbs, they don't really affect the big picture.

And what is the big picture? We all pay into a system (employers are responsible for the actual payment, but that cost is spread out over the goods and services consumed by individuals) that we hope will be there for us on the day that we have the misfortune to need some assistance.

So during the next 11 days when I'm not complaining or whining about something in our system, pick out one file, one case, where there was a success, where a person injured in the course of work was timely provided treatment, benefits, and went back to work thankful that there was a job waiting. Offset those negative cases with the one positive case that makes working in this industry worth while.

I know, even when I was doing defense work, that I was proud - weepy Italian proud - to be able to close a case knowing that the injured worker really was taken care of, for I assumed that part of my job as a defense attorney was really just reducing the friction.

The kids got home from college last night. My wife got a new doggie for Christmas. We have YET to put up any decorations. So I'm going to enjoy the last few days of the year hoping that my comments in 2012 made some difference in the state of workers' compensation.

I thank you for reading. 2013 is going to be one heck of a year - all of us are going to need some rest before it starts.

So go home. Kiss your spouse, kids and new dog. Do whatever your family traditionally does for the holidays. Stay warm. Be safe.

And be proud that we work in the single largest privatized social benefit system in the world, second only to Social Security in the delivery of medical and indemnity benefits.

When you get down to it, workers' compensation, at its most basic function, is just taking care of people. I like taking care of people; makes my liberal Italian genes provoke those hormone induced weepy-eyes and that feels good.

I'll type at you January 2, 2013. Happy Holidays everyone.

Thursday, December 20, 2012

Failure in Evidence Least of Employer's Issues

A recent Florida 1st District Court of Appeals (1st DCA) case highlights what is a common problem with employers attempting to mount a defense in the denial of a claim - failure to have their proverbial evidentiary act together.

For some reason, perhaps because of the lax administrative atmosphere of workers' compensation hearings, employers/carriers/defendants just don't take the rules of evidence seriously, and then when the case goes against them there is a complaint that the system is rigged in favor of the injured worker.

The following case illustrates what I believe is a more common reason for cases being decided against the employer - complete failure to obtain and properly authenticate ADMISSIBLE evidence. defines admissible evidence in part as, "evidence which the trial judge finds is useful in helping the trier of fact (a jury if there is a jury, otherwise the judge), and which cannot be objected to on the basis that it is irrelevant, immaterial, or violates the rules against hearsay and other objections."

The 1st DCA in Vaughan v. Broward General Medical Center et al., No. 1S12-0491, basically said that the employer's failure to authenticate a physician's note that was addressed "to whom it may concern" was a failure in evidence and thus this note, which was decisive in the trial judge's ruling on the case, was inadmissible and could not be relied upon as evidence.

Beverly Vaughan was attacked by a patient while working as a patient observer for the Broward General Medical Center in June 2004. She suffered a right shoulder sprain, multiple forehead abrasions and a cervical strain.

Vaughan's authorized treating orthopedist, Dr. Paul Meli, recommended physical therapy to address her cervical strain in January 2008. After a few months of treatment, Meli placed Vaughan at maximum medical improvement in December 2008.

Vaughan returned to see Meli the following November, complaining of pain in her right shoulder and cervical spine. Meli again recommended physical therapy. He reported that Vaughan's industrial injury was the major contributing cause of her pain complaints and her need for treatment.

I interrupt this narrative for an important observation - the date of injury was 2004, soft tissue injuries. Vaughan is still complaining about those same injuries 5 years later. This in itself doesn't make any anatomical or medical sense. The employer/carrier/defense should not have been in this position in the first place...

Back to the story: Two weeks later, in December 2009, Meli ostensibly changed his mind and wrote a letter addressed to "Whom it May Concern" indicating that Vaughan's symptoms were not related to her industrial accident.

Vaughan filed a petition for benefits in November 2010, seeking authorization of continued physical therapy and other benefits, but the medical center denied her request based on Meli's statements in the letter he purportedly wrote in December 2009.

A hearing on Vaughan's claim was set before Judge Hogan, and the hearing date was continued twice. On the date of the hearing, an attorney for the employer requested a third continuance, since the employer had not yet been able to depose Meli and clarify his medical opinion.

Vaughan did not oppose the employer's request, but since the defense counsel said his client would not be prejudiced if the hearing were to proceed, Hogan denied the continuance.

At the hearing, the employer sought to introduce the December 2009 letter supposedly written by Meli, but Vaughan argued the document was inadmissible as unauthenticated and as hearsay. Vaughan further contended that the correspondence did not qualify as a "medical report" under Florida Statutes Section 440.29(4).

Vaughan's evidentiary objections were overruled. Hogan ruled against Vaughan and Vaughan appealed.

The 1st DCA said the first mistake was that Hogan never ruled on whether the employer had complied with the requirements of Section 440.29(4) for admitting the letter as a medical report, or even if the document could qualify as a medical report. She also did not issue findings on whether the letter was authenticated, non-hearsay or covered by an exception to the hearsay rule.

To the extent that Hogan made an implicit finding that Broward followed the procedure set forth in Section 440.29(4) to render the letter admissible, the court said this finding was not supported by the record since the employer's attorney conceded that the employer had not served the letter upon Vaughan's counsel at least 30 days before the hearing, as required by the statute.

Even if the letter were admissible as a medical record under Section 440.29(4), the court added, authentication of it was required prior to its actual admission into evidence.

Since the reliability of the letter was never established, the court said Hogan erred in admitting and relying on statements it contained to deny Vaughan's claim.

Peeling back the skin of the onion a bit, what the 1st DCA is really telling the employer is that there is no real excuse for failing to authenticate the doctor's letter. The letter was dated December 2009. The first hearing was over a year later and continued twice. Surely the defendant could have obtained the doctor's deposition or even a simple declaration under penalty of perjury as to the authenticity of the note.

Nope - workers' compensation in the legal world is a volume business. Sometimes details get missed because the next case has to be dealt with. That's not an excuse, that's just fact. The employer/carrier/defendant simply failed to perform a very routine, easy, task - getting the document in question authenticated and then qualified as a piece of evidence.

Yes, the facts of this case seem pretty obvious: physical therapy for over 5 years for soft tissue injuries? Are you kidding me? I know you're shaking your head, thinking that this court is off base and that there is no semblance of reason in the law.

Sorry employer/carrier/defendant - common sense has no place when there are explicit rules on how things get done; rules that aren't all that difficult to comply with, and rules that, if the shoe were on the other foot, would just as easily benefit the employer/carrier/defendant just as much as the injured worker.

Employers, next time you have a complaint about a ruling coming out of the courts, look first at yourselves - did you proffer GOOD, ADMISSIBLE evidence? It's not that hard. 

Evidentiary rules protect the sanctity of jurisprudence. The court in Vaughn had no alternative in its ruling regardless of whether or not common sense dictates otherwise.

And as I mentioned earlier - how is it that Vaughn was still getting physical therapy 5 years after date of injury? Sorry - claims management was non-existent. If I were the risk manager for the employer someone would be out of a job right now. This case exudes incompetence throughout its history.

By the way, the 1st DCA seems to be able to warp time. The opinion in Vaughn is dated 12/19/2012. Page 4 of the opinion references "the merits hearing held on December 28, 2012."

Wednesday, December 19, 2012

The Politics in Challenging Independent Review

One of the most controversial elements of the California Independent Medical Review (IMR) process is that the identity of the reviewer is to remain confidential and that there is no right of appeal.

Texas has had IMR for some time, though it differs from California in that in Texas IMR decisions can be appealed. In Texas this process is known as independent review organization evaluations, or IRO. But like California, reviewers remain anonymous.

Texas Rep. Bill Zedler, R-Arlington, has filed House Bill 287 for the 2013 legislative session, which convenes Jan. 8. HB 287 would amend the law so that the identities of IRO physicians is not confidential.

HB 287 would amend Texas Insurance Code Section 4202.009 to require that following the completion of a review determination, a party that sought the review is entitled, upon a written request to the IRO, to the name and professional qualifications of any physician or other individual health care provider who made the review determination.

The bill also would amend Insurance Code Sec. 1305.355 by adding Subsection (h) to provide that after the completion of an independent review, a party to the dispute is entitled, upon written request, to the name and professional qualifications of any doctor or other health care practitioner used to perform the review.

The argument for eliminating the confidentiality of IRO physicians is to increase openness in the IRO process, including ensuring that there are no conflicts of interest on the part of IRO reviewers and that reviewers are not unfairly ruling for or against patients.

"We should be able to find out if a doctor is never ruling in favor of the patient," Zedler told WorkCompCentral.

But is it really in the interests of the injured worker patients to discover the identity of the physicians that are denying medical care?

Or is it really in the best interests of the physician whose treatment recommendation or protocol is being challenged? For after all, if a prescribing physician's treatment is denied then that physician doesn't get paid, and may have further protection against a malpractice incident.

In addition to HB 287, Zedler has also filed HB 286 relating to the investigation and resolution of complaints filed against physicians. HB 286 requires the Texas Medical Board (TMB) to reveal the identity and credentials of any expert physician that will be relied upon at a TMB hearing. HB 286 was filed 12/14/2012.

Zedler has also filed HB 305 relating to the release of complaint information by the TMB to the legislature. The bill amends the Occupations Code to provide that a single member of the Texas Legislature may request and receive all information regarding a complaint against a physician to aid in a legitimate legislative inquiry. The Occupations Code currently provides that TMB complaint information can be released to a legislative committee created under Subchapter B, Chapter 301, Government Code. The member of the Texas Legislature requesting the information would be required to sign a non-disclosure agreement.

The Texas Tribune has questioned Zedler's past relationship with doctors and it seems to me that in reality Zedler has the interests of physicians that he is seeking to protect in mind, not the interests of workers.

In a Texas Tribune article dated April 5, 2011, it states, "Zedler's critics suggest he may have another motive: Of the five physicians Zedler obtained records on from the Medical Board in 2008, at least two were campaign contributors who gave him a combined $25,000. The doctors, who weren’t his constituents, had been accused of “egregious” treatment violations such as injecting natural gas and jet fuel into patients to diagnose chemical sensitivities."

Another Texas Tribune article, dated September 16, 2010, questioned Zedler's access to confidential TMB and Texas Department of Insurance (TDI) Division of Workers' Compensation (DWC) information to help donor physicians who were the subject of TMB and DWC investigations:

"Of the five physicians whose cases Zedler took it upon himself to review, at least two were campaign contributors, campaign finance records show. In a phone interview, Zedler recalled requesting information about Houston anesthesiologist Vladimir Redko and Dallas thoracic surgeon Dr. William Rea, neither of whom were constituents. According to the board's disciplinary orders, both were ultimately sanctioned for 'egregious' treatment violations ranging from performing invasive procedures to injecting natural gas and jet fuel into the patients in order to diagnose chemical sensitivities. Records show that the doctors gave Zedler a combined total of $25,000 in the past half-decade and that some contributions were made just weeks before Zedler requested their case files."

"Zedler testified in April 2009 that he used the tactic of requesting confidential records to get the board to drop at least one case. A letter from Zedler, released by the Texas Medical Board through the Public Information Act, shows he asked for the 'immediate appeal' of one doctor’s sanction (the doctor’s name was redacted). The former executive director of the Texas Medical Board remembers hearing from Zedler frequently. 'He was very active at contacting me about issues he had,' says Dr. Donald Patrick, a neurosurgeon who led the board until 2008. 'Let me just say this: The good legislators called up and asked for information. Legislators that I didn’t regard as good called and tried to influence what we did. I knew the difference.'”

The alleged purpose of removing the confidential nature of IMO/IMR identities is to ensure that there is no conflict of interest.

But in reality it seems the conflict of interest is in reverse; the actual disclosure of that information is not for patients to know who is making decisions on their treatment, but to provide treating physicians information that would assist their professional lives.

Some Californians are actively in the process of challenging the new law's, SB 863, IMR confidentiality provisions. Texas Rep. Zedler's actions and journaled history should be reviewed by any judge or legislator brought the challenge to properly question the motives of such appeal.

And Texas legislators should also pay attention lest they unwittingly increase the risk to patients being treated by physicians who fail the Hippocratic Oath.

Tuesday, December 18, 2012

NJ Carve Outs - Another Evolutionary Step

There are many who doubt that alternatives to workers' compensation can or should be permitted to exist, for various reasons. The evidence grows every legislative season, however, that discontent with business as usual is growing and that more states are looking to offer other ways to administer benefits more efficiently.

"Carve-outs" have been in existence now in California for about 20 years. Slow to be accepted at first, as of 2010, the California Division of Workers' Compensation reported that 24 carve-out programs were operating in the state, primarily in the construction industry. The programs included 1,177 employers with a combined payroll of $1.98 billion and 32,350 full-time employees. 

There are other carve-outs too covering public safety unions and more recent legislation has expanded carve-outs for other industries.

Of course you are familiar with Texas Work Injury Insurance Programs (WIIPs), more commonly referred to as non-subscription plans, the context of which are the subject of exportation to Oklahoma and Tennessee presently and which have been the topic of study by recent publications.

Now New Jersey is looking at alternative workers' compensation in the form of carve-outs.

New Jersey Assembly Labor Committee Chairman Joseph Egan, a New Brunswick Democrat and business manager for the International Brotherhood of Electrical Workers Local 456, filed Assembly 3423 on Nov. 19.

Senate Labor Committee Chairman Fred Madden, D-Turnersville, filed identical legislation in the form of Senate 2201 on Oct. 1.

The bills would allow employers and unions to establish alternative dispute-resolution procedures for injury claims through collective bargaining. The systems would operate outside of the New Jersey Division of Workers' Compensation and be governed by a board with an equal number of employers and union representatives.
  • Unions and employers or groups of employers would have to agree as part of the union contract that all injury claims be submitted to binding arbitration. Decisions by arbitrators could be appealed to the New Jersey Superior Court. Treating physicians would also be selected from a list agreed upon by the union and employers.
  • Employers would be required to create light-duty, return-to-work programs.
  • Both the unions and employers would be required to create occupational safety and health committees.
  • Employers with group health plans would be allowed to integrate group health care with treatment for injured workers.
  • Injured workers would receive the same level of benefits guaranteed them under the state workers' compensation system.
As commented in the WorkCompCentral story covering this development, some programs are good, some are bad - the devil is in the details, or more particularly, how many good physicians will participate in the program.

Both California and Minnesota have experienced similar issues with their carve-out programs and commentators for both have said that they work well when physician lists include treaters who will actually participate. Carve-outs, of course, fail like traditional work comp when there is a dearth of participating physicians because failure to treat delays the claim which thus delays recovery begetting increased claim cost.

The New Jersey proposal though, as noted above, would permit the integration of group health care to treat injured workers. How well this works would depend upon the carve-out plan and presentation, reimbursement between group plan and carve-out plan, etc. But at least participants would have the option to deal with the potential of health care integration, which may become more of an issue as the Affordable Care Act comes more into effect over the next two years.

Regardless I believe the evidence is clear that a trend towards offering business and labor an alternative to traditional workers' compensation is growing and spreading across the nation. Carve-outs, WIIPs, and other creative ways of more efficiently providing benefits to injured workers and still giving employers exclusive remedy protection are simply an evolution of work injury protection philosophies.

We'll see more states following suit.

Monday, December 17, 2012

The Regulatory Process Myth

“The intent of the Legislature was to provide a replacement for Ogilvie ratings,” Department of Industrial Relations (DIR) Director Christine Baker is quoted as saying at the Commission on Health and Safety and Workers’ Compensation (CHSWC) meeting on Friday.

Let's get one thing straight - SB 863 was not the intent of the Legislature.

It was the intent of Big Self Insured Business (and Big Labor at the desperate request of Big Self Insured Business to get their support).

And Big Labor almost didn't go along with out the $125 million bonus that was negotiated at the last minute and paid for by employers with a(nother) surcharge on insurance premiums.

The Legislature, on the other hand, was just along for the ride.

And don't believe that the lobbying and, in my opinion, undue influence, is over. Big Self Insured Business is intimately involved in drafting the regulations that are to implement SB 863.

Everyone talks about the "administration" drafting the regulations. It may be Division of Workers' Compensation (DWC) or DIR word processors that are outputting the text, but the thought, the language, the structure of the regulations don't stray far from the heavy hands of Big Self Insured Business

Empirically, scientifically, studied, without political influence or emotion; that's how we THINK regulatory promulgation occurs.

Far from it.

In truth, the regulatory process is as politically influenced as the legislative process.

Sources that are intimately involved in the regulatory processes since the passage of SB 863 have confirmed this to me. Big Self Insured Business will tell us how certain administrative systems should operate.

The way regulations are actually promulgated in this overly adversarial industry is that the people that fund the legislation dictate the terms of the regulations.

The government remains beholden to those whose interests are primarily represented in the legislative process. It is NOT government for the people, by the people. In this case it is government controlling the people as dictated by Big Self Insured Business.

And maybe that's just the way it has to be. Maybe Big Self Insured Business just got so upset with the way things have gone for so long in workers' compensation that they just decided it was time to take matters into their own hands to the exclusion of all others. Maybe the bipartisan approach just doesn't work and Big Self-Insured Business is just frustrated with opposition that doesn't offer alternatives or solutions that are viable.

But this isn't how government is supposed to work, at least not in my mind. There's room for debate, and room for compromised solutions. Back room deals, forced law, uncompromising positions, only breed contempt and further instigate adversarial relations.

At the CHSWC meeting on Friday, Baker said, “A supplemental job displacement benefit on a 2013 or later injury will show that the worker did not have an opportunity to return to work with the at-injury employer.”

Brad Chalk, legislative chairman and immediate-past president of the California Applicants’ Attorneys Association, took issue with that statement, saying after the meeting that eligibility for the program is not determined by date of injury.

Because the new Labor Code section creating the $120 million fund does not specify when the fund takes effect, applicants’ attorneys say eligibility should be determined pursuant to Section 84 of SB 863, he said. That section says the bill “shall apply to all pending matters, regardless of date of injury, unless otherwise specified in this act, but shall not be a basis to rescind, amend or reopen any final award of workers’ compensation benefits.”

Fight as they may on the regulatory language, my guess is that CAAA is going to lose this round and will need to challenge the language in a court case to the Court of Appeals or Supreme Court.

Unless for some reason Big Self Insured Business can be convinced otherwise - and fat chance on that.

Defense attorney and author of Sullivan on Comp, Michael Sullivan, told WorkCompCentral that Baker has final say.

“The statute appears to give a great deal of discretion to the director,” he said. “The fact that it says, ‘eligibility for payments and the amount of payments shall be determined by regulations adopted by the director,’ said to me that the director and the regulations the director creates will be the basis for determining questions like when are the funds going to be distributed, how are the funds going to be distributed and what is the method for collection.”

Sullivan is partially correct. The director does have final say.

But the Director is not making any decisions in a vacuum. There is influence outside the DIR's offices that are helping the Director draft the regulations and make regulatory decisions.

The representatives of Big Self Insured Business have weekly meetings to ensure that they are on the same table about all of the pending issues; a unified force with strong political power exerting near monopolistic influence over the outcome of a governmental function.

For those who are affected by SB 863 and the regulatory process now underway, making public comment on the regulations via DWC's forums, writing to the Administrative Director, or pitching directly to them, will have no effect whatsoever. You may as well throw your comments directly into the trash.

Just as the pre-SB 863 dog and pony show produced no directional change, so too do public comments on pending regulations. These are "feel good" measures - a marketing trick that is pretty transparent: there is no desire by the government to take into consideration the reasoned review of the public in matters of workers' compensation.

Small example - the regulations that were originally proposed for independent bill review called for the fee to be $325. Providers objected that the fee was too high and unsupported by any evidence as to what the actual cost is.

Instead the filed regulation set the fee at $335. No explanation, no reason, nothing tied to evidence of cost. I'm sure there is some reason for the fee adopted, but it is not explained publicly.

“Is the whole world going crazy?” said Reid Steinfeld, an attorney who specializes in medical collections and was critical of the proposed $325 fee, in an email to WorkCompCentral. “Now my co-workers are mad at me for my comments. They think the insurance company gave me a giant FU.”

Reid, you are directing your anger at the wrong interests. It's not the insurance companies, but Big Self Insured Business giving you the bird. You are focusing on the wrong constituency.

If one really wants to affect the outcome of the actual language of the regulations then look to the backers of SB 863, and the actual individuals involved. They are, de facto, making the regulations. Review how SB 863 came into being - those same tactics are being used in the regulatory process.

Don't kid yourself. Politics plays a big part in the regulatory process. It is government against the people, by a select few.

I'm not anti-SB 863. I believe that there are provisions in the bill that were necessary, were a reaction to significant problems in the California system, and I also believe those that work in the system will adjust.

There are provisions of the law, however, that require good discourse and reasoned implementation. There are times when the input of seasoned professionals on ALL sides of the conversation need to be seriously considered because those are the people that are REALLY going to implement this law and they're the ones that are going to figure out how to pick it all apart as well.

Ignore the front lines, and suffer the consequences. We've been here before. History repeats because memory is short. Is there any question why "reform" cycles so predictably?

Friday, December 14, 2012

Can't Mess With Texas

At the annual National Council on Compensation Insurance (NCCI) state forum for Texas yesterday, Harry Shuford, chief economist for NCCI, warned that workers’ compensation carriers nationwide continue to suffer from low rates of return on investments and reduced premium volume because of slow employment growth.

However, Shuford advised, Texas' workers’ compensation system is in good condition – thanks to reforms and a healthy state economy.

In September, NCCI submitted to the Texas Insurance Department a proposed 3.8% reduction in loss costs, with an effective date of June 1, 2013. The department has not yet acted on the filing.

Terri Robinson, NCCI state executive for Texas, pointed out that premium volume increased to $2.16 billion compared to $1.92 billion in 2010 and $2.19 billion in 2009. The highest volume for the past 10 years was $2.81 billion in 2006, according to Robinson.

Combined ratios “remain favorable,” despite some deterioration, Robinson said. In 2011, the combined ratio for Texas was 94%, compared to 93% in 2010 and 82% in 2009.

I like that Robinson characterized that Texas' combined ratio is experiencing "some deterioration." Most states would kill to have combined ratio stats like Texas - which I believe may be one of the only states where work comp carriers actually make an underwriting profit.

Medical costs also are dropping in Texas according to NCCI - Texas' average medical claim severity on lost-time claims decreased 4.9% in 2010, to approximately $23,500 per claim. In 2009, costs dropped 7.3% to an average of approximately $24,700 per claim.

Medical claim severity has been on a downward trend since 2000, when the average cost per lost-time claim was approximately $38,700.

What's going on in Texas that's different from any other big state, or any other state in the Union generally?

To quote the Clinton campaign for president in 1992 - "It's the economy, stupid!"

Robinson and Shuford both said Texas is benefiting from a strong economy which is outperforming the national average.

We in the work comp industry forget quite often that the fortunes and perils of our industry are directly tied to the economy. Workers' compensation, at its very most basic operation, is all about jobs. The fewer jobs there are, the fewer workers that are employed, which means total payroll is down, translating to lower premiums.

Lower premiums mean less money to support overall workers' compensation operations because reserve money is already dedicated to paying claims.

And one of the most significant issues with this economy is that the industries most affected - construction and manufacturing - are the slowest in recovery. This affects workers' compensation disproportionately because construction (in particular residential construction) and manufacturing generate the highest premiums because they are high risk industries.

NCCI nevertheless has recommended a 3.8% decrease in loss cost filings, that include:
  • Experience, minus 6.3%.
  • Trend, plus 1.5% (indemnity, plus 4.1%, and medical, 0.0%).
  • Benefits, plus 1.1% (state average weekly wage, plus 1.9%, and medical schedule, plus 0.5%).
Average changes by industry group include:

  • Manufacturing, minus 2.6%.
  • Contracting, plus 0.9%.
  • Office and clerical, minus 6,2%.
  • Goods and services, minus 9.6%.
  • Miscellaneous, minus 0.4%.

In the meantime, Peter Rousmaniere and Jack Roberts, both from the Risk & Insurance group of publications, have just released a thorough, non-biased, review of ERISA-based non-subscription models (that I call Work Injury Insurance Plans, or WIIPs) that are currently operating in Texas, and as had been (and will be) proposed for Oklahoma (and perhaps Tennessee). The report is entitled Workers' Compensation Opt-Out: Can Privatization Work? The Texas Experience and the Oklahoma Proposal.

(A great review of this report is authored by Tom Lynch of the Lynch Ryan brokerage and can be read on his blog at

The hypothesis that Rousmaniere and Roberts postulate is that regulated WIIPs could work in other states if properly structured, thus creating another option for employers interested in taking care of their workers in the most efficient and beneficial manner. Their paper provides pretty strong evidence that WIIPs can work.

I contend that one of the reasons Texas' current workers' compensation system is so efficient is because of the inherent competition that WIIPs place on the traditional system.

Texas' work comp system, prior to HB 7 in 2005, was a mess. Quite frankly, its operational dysfunction was rooted in the calamity that was previously known as TWCC, or the Texas Workers' Compensation Commission. HB 7 dismantled that agency and transfered all of its functions into the Department of Insurance.

This ended decades of insular operations within the Texas state government and moved responsibilities of an insurance program to an agency that actually understands insurance and its regulatory environment.

Another move contained in HB 7 that I think doesn't get the credit it should is that the bill imposed mandatory rate regulation by the Department of Insurance if it finds insurance rates excessive in December 2008, after implementation of the reforms.

In my opinion, rate regulation (not advisory like in California) is absolutely required for a healthy workers' compensation system. Bottom line - some carriers require discipline, others just shouldn't be in the business. But by the time that these facts become known to policy purchasers, it's too late (California, you hear me?).

In 2013 WIIPs will again be part of the Oklahoma legislative agenda, and may also be on the Tennessee agenda, along with other workers' compensation reform initiatives. The results in Texas are hard to argue against. The question is whether the culture of that system can be exported to other states.

Or will migration to Texas continue to increase?

Thursday, December 13, 2012

Reform is Like Trying to Stop Water

The biggest danger in drafting new laws is that there is no way anyone can anticipate all of the factual permutations that may be affected by the changes. Intent on either curtailing a certain abuse, or implementing a previously overlooked benefit, legal authors have no way of completely understanding all of the situations that could fit within a given statute, or can not adequately draft language that covers all situations.

Of course, California's new reform, SB 863, is a prime example.

There should be little doubt that a big driver of many of the more revolutionary changes made to the law under SB 863 has to deal with medical treatment, bills and liens. Those items have long been cited for hyper-inflationary growth and contributing disproportionately to administrative friction and costs.

These laws are intended to curb abuses that have been well documented by industry researchers, decried by industry observers.

Instituted to curb the "one-percenters" - the outliers that drive the majority of uncontrolled costs - new laws sometimes have the perverse effect of creating new case law that could have the reverse effect.

Many times I hear how, in California, the "liberal" courts have destroyed legislative intent by opening up big holes in the law. But the reality is that the courts deal with the application of specific factual situations to which the law is applied.

And often the facts don't fit the law very well. When the law is as complex and serpentine as California workers' compensation law, creative legal work will, like water, find the path of least resistance.

A comment was made on the WorkCompCentral Professional Forums yesterday that I think highlights the frustration of the majority of people that do not engage in abusive practices, and points to how reform law, intended to reel in costs, may unintentionally create costs in some other fashion and in the case of SB 863 increase the cost of litigation.

To paraphrase the post, the author described a situation where an obvious industrial injury occurred, but the physician did not want to take the chance of treating without specific authorization from the insurance company, then experienced delays while either the treatment request or billing authorization go through the various steps.

The poster states, after reciting quite a complicated fact pattern tied to the "process," "All of which I can tell you has happened just this year. So these endless rules to police the medical thugs makes the real life day to day care of the injured complicated, endangered and delayed right into the hands of representation. Or do we pull string, make calls to docs we know and get the patient care today, not knowing if our reward will be a $150 lien filing fee or $325 IBR."

"Medical thugs" - I like that term. But that's off topic.

The Forum discussion started when someone asked what the process was for a denied case where treatment was provided. I responded that, essentially, the provider was SOL, that no action would be taken regarding treatment or billing until the underlying AOE/COE issues were resolved and if the employer won on those issues there would be no payment forthcoming.

Someone responded that treatment would legally be authorized under Labor Code section 5402(c), which states that during the pendancy of claim submission (i.e. "delay") treatment is permissible and the carrier is liable for, up to $10,000.

That may be the case, but I can envision tendering a defense where the provider knew or should have known that the case would be denied and that services were provided under an assumption of the risk type of doctrine, thus no payment.

Even this, seems to me that process would be that, given the case where treatment is provided pending investigation and delay, the provider's actions would first be subject to utilization review (twice) then independent medical review, then whatever procedures were left over as "authorized" would then be subject to fee schedule review and ultimately independent bill review.

To which another posted, "Waiting for the AOE/COE issue to be tried is great, except as you all know, 90% of the cases settle by C&R."

Thus, where a case does settle, will there nevertheless be a trial on AOE/COE to determine the provider's reimbursement rights? Frankly, I doubt it because the claimant likely won't cooperate - he or she is long gone after having been through the process and would have no interest in helping the provider get paid.

Hmmm, didn't think about that fact pattern!

Will medical treatment withstand this test? Or will providers with a conciense simply reject workers' compensation cases that are not specifically authorized?

Another stated:

"In the real world outside the Comp Dreamland, no doctor, no dentist, no psychiatrist, no "H-Wave" provider, no EMG specialist, not even a sign painter, would ever dream of performing work until the party responsible said 'I'd like you to do this,' and agreed to pay (and to be clear, there is an implied in law agreement that when I walk into a dentist or whatever, that I will pay for services even though I did not sit down and discuss the contract with the doctor, barber, dentist, whatever.)

"Why would a medical provider just assume they could make the employer or insurance company pay? Because the system was grossly flawed, and allowed them to do that. Because they could."

And that returns us to the fact that the law when drafted can not be crafted to deal with all of the various permutations of fact that can be thrown at it. Life is just too complicated to box up.

Which means that the "medical thugs" will continue to be in business.

As another post responded, "seriously, you think people will not figure out how to game this system, either legally or through illegal means?"

All I know is that SB 863 is a hugely complex change in the law that attempts to plug holes created by those "one-percenters." Eventually some cases will come out of the courts dealing with a specific factual pattern that will be used by the "medical thugs" (and others in concert with them) to generate a new line of profitability at the expense of the system (and you and me).

Like flowing water, eventually leaks occur. And the leaks won't be detected until the water flows through. Unfortunately by then the damage is done.

Wednesday, December 12, 2012

Presumptions and History

This is about presumptions, and you've read my take on presumptions in the past...

Union Carbide Corp. is challenging a new line of case law at the U.S. Circuit Court of Appeals for the 4th Circuit, which is allowing deceased miners’ spouses a second chance to obtain survivors benefits under the Black Lung Benefits Act.

In Richards v. Union Carbide Corp. the Benefits Review Board (BRB) allowed Virginia Richards to pursue a survival claim filed in 2009.

Richards is the widow of Arlie Richards, a miner who had been diagnosed with pneumoconiosis and received benefits under the Black Lung Benefits Act while still alive. After Arlie's death, Virginia filed her first claim for survival benefits, but it was denied in 2006.

She filed a new survival claim in 2009, shortly before the passage of the Affordable Care and Patient Protection Act. The Benefit Review Board's Jan. 9 decision essentially allows Virginia, and other claimants similarly situated, to pursue what attorneys are calling a "subsequent survivors' claim."

The appeal is the latest piece of litigation emanating from the Affordable Care Act changes to the Black Lung Benefits Act, under a provision known as the "Byrd Amendment."

The amendment, which is named after the late U.S. Sen. Robert Byrd (D − W.Va.), restored a presumption that coal miners who worked at least 15 years in underground or comparable surface mines and who suffered a totally disabling respiratory disease are entitled to Black Lung Benefits.

The Byrd amendment and several federal appellate court rulings entitle a dependent to automatic survival benefits, as long as:
  • The original miner was eligible to receive benefits under the Black Lung Benefits Act.
  • The survivors' claim was filed after Jan. 1, 2005.
  • The survivors' claim was pending on or after March 23, 2010, the date the PPACA was approved.
The BRB rejected Union Carbide's argument that the Byrd Amendment was unconstitutional because of a denial of due process rights.

BRB also rejected the employer's res judicata argument, concluding that the Affordable Care Act created “a new cause of action” for miners' survivors, and that Richards' latest claim was a new cause of action.

Noting that the administrative law judge’s Decision and Order must be affirmed if it is rational, supported by substantial evidence, and in accordance with applicable law, the BRB said that the Byrd Amendment created a “change” by establishing a new condition of entitlement that is wholly independent of the miner’s cause of death, and that justifies, for a limited class of survivors, application of the presumption to a subsequent claim; because Richardson was asserting a claim that was not in existence at the time of the original denial, because the Byrd Amendment had not existed at the time of that denial, it was a new claim as far as the BRB was concerned.

Review Board member Judith Boggs dissented, stating nothing in the legislative changes called for previously-denied claims to be disturbed or revived.

Richardson's attorney said that the BRB's rulings in these cases should not come as a surprise to the mining industry, as the Affordable Care Act simply restored an automatic entitlement that had existed before 1981.

Presumption cases are statutory creatures of political negotiation; they always seem to make interesting case law/stories but in the end it really comes down interpretation.

The BRB said in its opinion that, "The statute makes no distinction between those who previously filed a survivor’s claim and those who had not; their entitlement to benefits is the same. They are, therefore, equally entitled to a continuation of black lung benefits, uninterrupted by a prior decision denying survivor’s benefits."

A footnote to the dissent, in my opinion, affirms the interpretation taken by the majority, noting that in the past a huge backlog of claims were being held up - clearly the presumption was intended to tell mining companies, "you lose":

"[A] very useful purpose was, and is, served by relieving surviving dependents of the burden of successfully negotiating their way through a process that significantly delays receipt of benefits on which they depend. At the time that the 1978 legislation was being considered, Senator Hatch stated, with respect to claims filed under the Act, that:

Out of approximately 109,000 claims filed, 4,100 have been approved and 56,000 have been denied. The remaining 49,000 undecided claims form the backlog resulting in large part from an average claim processing time of 630 days. Of the claims approved, coal operators are paying only 200; the industry is controverting 97 percent of the claims for which a responsible operator [has] been identified by the Secretary of Labor."

The BRB is clearly cognizant of the mining industry's past and isn't going to let this happen again. Whether the 4th Circuit agrees will remain to be seen.

Tuesday, December 11, 2012

Decade of the WIIPs

With 2012 winding down and becoming past history, 2013's workers' compensation issues are starting to warm up.

I have heard a lot in the past few days about regulated non-subscription and it is clear to me that this is not just a passing fad, but that there is some very important momentum developing in several states, not the least of which is Oklahoma of course, since Oklahoma played with the idea this past year, but even Texas where non-subscription originated.

While the Texas AFL-CIO had opposed non-subscription in the past and had been a vocal proponent of mandatory workers' compensation for all employers, Austin attorney Rick Levy, who is director of legal services for the Texas AFL-CIO, told the Texas Senate Committee on State Affairs Monday that the state should look at an option being considered by Oklahoma as an alternative program - that is regulated non-subscription, or what I like to refer to as Work Injury Insurance Plans (WIIP).

In other words, either an employer subscribes to traditional workers' compensation, or has in place an approved non-subscription program or WIIP that meets minimum statutory requirements.

If such requirements “are good enough for the workers of the state of Oklahoma, surely they are good enough for workers and employers in Texas,” Levy said.

There are several studies and reports that will be published in the coming months that generally are going to be favorable to such considerations.

Some of the reports may be dismissed, despite their scholastic quality, as biased. Other reports, however, are completely independent.

What these reports are going to show is that, for employers that have the resources, WIIPs can not only save money for employers, but can deliver superior benefits and employment opportunities to workers.

The pressure is going to be on in Texas to implement laws mandating either workers' compensation or enrollment in approved WIIPs.

The Division of Workers’ Compensation, in its biennial report to the Legislature issued earlier this month, said approximately one-third of Texas employers have chosen to opt out of the state’s workers’ compensation system.

The report also says the percentage of Texas employees working for non-subscribers increased from 17% in 2010 to 19% in 2012.

How many of those have work injury replacement plans in place I don't know.

But, as Levy said to the Senate committee, those numbers mean approximately two million Texas workers lack the protections afforded by workers’ compensation, including income benefits, lifetime medical benefits and protection from retaliatory discharge.

The evidence is clear, as upcoming studies are going to show, that WIIPs allows employers to control costs and offer better benefits to their employees.

James Avery Co. in Kerrville, Texas, has a WIIP. Margaret Greenshield, human resources director for James Avery, told the committee that the company has been able to achieve a 99.5% return-to-work rate and pays injured workers 100% of their wages for their first 40 hours off work and 80% of their pay after that period.

The company has passed savings on to employees through profit-sharing and lower employee contributions to health care, according to the company's representative in the story.

I'm an employee (okay I own most of my company) but one thing I can tell you that is likely universally true - I LIKE profit-sharing. I'd rather share in the profits than see that money go towards insurance premiums if possible! I think most employees would say the same thing.

The James Avery story is the kind of story that is going to permeate the coming publications on WIIPs. Are they perfect? Of course not. Are there outliers and programs that don't work? Of course there are.

And likewise, there are many failures in traditional workers' compensation.

Society has changed dramatically in the past 100 years. Worker protection laws have also changed dramatically.

Workers' compensation, despite all the reforms that trend every decade or so, has not. In the bigger states, workers' compensation seems to be crumbling under the weight of its own regulation.

It's a shoe-in that Oklahoma legislators will be asked to consider permitting WIIPs again in 2013. It is possible that Texas legislators will be asked to mandate either work comp or approved WIIPs when the Legislature convenes on Jan. 8.

Tennessee, from what I understand, may also see requests for WIIP options.

My guess is that this next decade will see this trend accelerate across the nation. At some point both Labor and Business are going to get tired of endless reforms that don't deliver as promised. The essential parties to the bargaining table, Labor and Business, at some point in these contentious states (yes, I'm talking about California, New York, Florida...) are going to ask to take control of the their own plights and futures and work out their own deals free of bureaucratic interference with all of the attendant costs and delays.

If anything is clear to me, this decade is going to be punctuated by a social experiment as great as the original workers' compensation laws.

WIIPs are here to stay.

Monday, December 10, 2012

A Common Sense Fix to the TX URL Case

Because workers' compensation is a state-by-state phenomenon, every jurisdiction has its own little quirky laws that originate to deal with relatively local problems - at least as they are perceived by legislators and regulators.

Texas has a law, Section 419.002 of the Texas Labor Code, that prohibits the misuse of the Texas Division of Workers' Compensation's (DWC) name, initials, logo and any combination of the words "Texas" and "Workers' Compensation" (or "Workers'Comp") by unauthorized persons "in connection with any impersonation, advertisement, solicitation, business name, business activity, document, product, or service made or offered by the person regarding workers' compensation coverage or benefits."

Lubbock workers' compensation attorney, Jack Gibson, has an Internet domain name, ""

A few years ago he received a cease and desist order from DWC, advising him that he was in violation of Section 419.002 by the use of such domain name.

So Gibson sued, alleging violation of his free speech rights and other constitutional protections.

The U.S. District Court for the Northern District of Texas dismissed Gibson's complaint, saying he had failed to state a claim.

On Oct. 30, 2012, the U.S. 5th Circuit Court of Appeals in New Orleans ruled that the trial court erred by dismissing Gibson's constitutional challenge and remanded the case back to the trial court to determine whether the statute is necessary to advance a "substantial state interest" and whether the law is more extensive than necessary to serve that interest.

The origin of 419.002 goes back to abuses by certain medical clinics that were setting up shop in buildings that also housed the field offices for the former Texas Workers’ Compensation Commission (DWC’s predecessor) and using similar names, such as "Texas Workers’ Compensation Clinic" in conjunction with the use of the state seal.

Presumably this is no longer an issue.

But the statue remained and Gibson was targeted.

Now DWC Commissioner Rod Borderlon is asking the legislature to reconsider that statue and amend it so that it is not so broad and sweeping.

In DWC's biennial report to the Legislature, in which Borderlon is expected to say the state's workers' compensation system is in good shape, it is suggested that the legislature create a "new Labor Code Section 419.001 and clarify existing Labor Code Section 419.002" to say that the use of the agency's name "and other terms and state symbols is prohibited if they are used in a 'deceptive manner' in an effort to create a false impression that something is endorsed, approved, sponsored, authorized or associated with" the DWC, Texas Department of Insurance or the State of Texas.

"These changes are meant to clarify the existing statute so that it aligns with the way the Division has applied these requirements in individual cases − to prohibit the use of the agency’s name, certain terms and state symbols when it is being used in a deceptive manner," the report to the Legislature says.

Kudos to Borderlon for thinking ahead, and for making a good attempt at rectifying what I think is a misdirection of DWC resources.

I can understand DWC's cease and desist enforcement action against Gibson - upholding the law requires administrative action. The law is what the law is and that law was necessary to deter deceptive actions by people that have no association with the Division.

And I can completely understand Gibson's position, in particular because I am a publisher. The enforcement action in my opinion is an impermissible restriction against free speech since Gibson is not engaging in any practice that holds himself out as a part of the government.

Borderlon's approach should end the issue for the long term. And it seems to me the parties (Gibson and DWC) can come together at this stage and settle the litigation so that each can direct their energies and resources towards more productive activities.

And I urge the Texas legislature to adopt Commissioner Borderlon's recommendations as just plain good sense.

Friday, December 7, 2012

In Jerry We Trust

61% of the employer premium and self-insured deposit increase is “preparation for implementation of SB 863,” California Department of Industrial Relations (DIR) spokeswoman Erika Monterroza told WorkCompCentral yesterday.

To implement various provisions in the reform bill, the division believes it will need an additional $89.8 million more than it collected this year, $72.6 million of which is needed for the Workers’ Compensation Administration Revolving Fund (WCARF), which pays for the day-to-day operations of the Division of Workers’ Compensation (DWC).

Greg Edwards, chief financial officer of the Department of Industrial Relations, said during a telephone interview that he can’t provide additional information on where the money for implementing SB 863 will be directed until the governor releases his budget.

The Department of Finance said the governor plans to release his budget on Jan. 10.

“In a normal year, if any year can be called normal, we usually can communicate quite specifically on what is in the assessment and what is driving the assessment,” Edwards said.

For the 2013 assessment, Edwards said he can’t discuss details about the impact of the reform bill “because it does contemplate some elements of SB 863, and because elements of SB 863 will be included in the governor’s Jan. 10 budget, which is considered confidential until it is released.”

Edwards told WorkCompCentral he can’t even talk about which provisions of SB 863 drove the assessment increase.

In other words, people at the top know - they just don't want US to know.

Secrecy is how the Brown Administration works. The Governor's office would rather not be engaged in debate, would rather not elicit the feedback of constituents who are affected by top-down decisions, would rather that people figure it out on their own, after the fact, with little time to adjust, so that the next big spending project can be conjured and implemented without debate.

What is more frustrating, however, is that The People are just fine with how this governor operates.

Jason Schmelzer, a lobbyist for the California Coalition on Workers’ Compensation, said “Employers would be silly to say, ‘Hey, state of California, we want you to fix the workers’ comp system, but we will be outraged at paying for implementation of reform provisions that are supposed to pay for benefit increases and also save us money.’”

With all due respect to Schmelzer, I don't know of any employer who is taking the position that they don't want to implement reforms (that in my opinion likely won't garner much if any savings over the long term). The issue is not the sum total of what is being spent.

The issue is HOW the money is going to be spent.

California government has a long history of picking the pockets of its citizens with promises of prudent spending and gregarious claims of benefit and value, only to find later that the spending had to be more than anticipated, and that the benefits would be much less than promised.

A glaring example of this was the 1984 passage of Proposition 37, the California State Lottery Act.

The California State Lottery Act of 1984 was intended to provide more money to schools without imposing extra taxes. Accordingly, the Lottery was required to provide at least 34% of its revenues to public education, supplementing (not replacing) other funds provided by California.

On April 8, 2010, Governor Schwarzenegger signed into law Assembly Bill 142 (Hayashi, D-Hayward), amending the Lottery Act, which directs "the commission to establish the percentage to be allocated to the benefit of public education at a level that maximizes the total net revenues allocated to the benefit of public education."

Since 1984 billions of dollars have filtered through the California lottery system to "benefit" public education. But that wasn't enough.

Well, it WAS enough for a while. But government being government, the lottery funding source eventually has become taken for granted. Budgets became reliant on lottery money. Then budgets outstripped lottery revenues, particularly in lean years. The money that had been taken for granted in so many public school budgets wasn't enough.

That brought us Proposition 30 (I know, I know - I keep going back to Prop 30...), a massive tax increase on the citizens of California with no succinct rules in place ensuring good fiscal management. Just promises - and we know politicians and promises...

I had been taken to task a bit in my earlier columns about the employer assessment, the argument being that in fact employer assessments represent such a small "contribution" by employers and is not that large of a "tax" in the grand scope of things - it's just a small amount of money relative to overall revenues and expenses.

That's not the point - the point is that this Administration seems to go to any length to ensure that its citizens are kept uninformed for as long as possible to avoid any semblance of educated debate, particularly when it comes to lifting dead presidents from wallets.

That private enterprise has to pay for the administration of public self-insured employers, and that such a provision was glossed over by everyone associated with SB 863, leaves a bitter, bad taste in my mouth.

And it should in your's too.

When does secret taxation stop? When do we hold our politicians and bureaucrats responsible for telling the truth? When do we hold them accountable for failing to do what had been promised?

The fact is, we don't. We never will. Californians are as apathetic as ever. We're happy with our little special interests - it's okay that government spends without oversight to implement a law that presumably will "pay for benefit increases and also save us money.”

In Jerry We Trust...

That's the message we continually send to Sacramento.

Next week I'll have to pick on something other than California. I've had enough frustration this week.

Thursday, December 6, 2012

Employers Just Need Stability

I've been on a tear this week about California reform and politics, so why stop now?

Yesterday the California Workers' Compensation Insurance Rating Bureau (WCIRB) met to discuss quarterly data and make actuarial prognosis for the next quarter.

The verdict? Nothing has changed yet, and the concern is that increases in frequency seen since 2010 may not be related to economic factors. The bad part is that the driver behind increased frequency can't be identified.

And, what has been repeated almost ad nauseum by anyone not associated with the SB 863 propaganda, the impact of the reforms will not be measurable for at least a year, and it probably will take longer than that.

Tony Milano, senior actuarial analyst for the Rating Bureau, told members of the Actuarial Committee on Wednesday that there was "nothing new that we haven't already discussed" in the data from the third quarter of 2012.

From the good news side of the reporting, claim settlement rates continued to improve at the third-quarter mark for the second consecutive year, Milano said. About 21.3% of indemnity claims filed in accident years 2008 through 2010 were closed within nine months. In 2011, the settlement rate increased to 21.9% of claims being closed by the end of September, and in 2012 that number increased to 22.5%.

Can the settlement rate be sustained though? Frequency is growing faster.

Data collected through Sept. 30 shows the number of claims being filed is on pace to increase by 3.3% in 2012. The increase follows a 0.8% increase observed in 2011, and a 9.1% increase in 2010.

Dave Bellusci, chief actuary for the Rating Bureau, said the increase in frequency and increases in indemnity and medical severity points to an overall 6% or 7% increase in costs for 2012.

2013 will be busy for the WCIRB, as it will for most professionals in the California workers' compensation system coming to terms with SB 863.

The Actuarial Committee of the WCIRB plans to track the cost impact of SB 863 and analyze the impact on loss development methodologies. WCIRB actuaries will also review, and if necessary, revise estimated savings and costs associated with the bill.

The WCIRB also plans to analyze fee schedules for interpreter, copy and home health services, within 90 days of the Division of Workers' Compensation publishing final values, and also said it will price the Official Medical Fee Schedule based on Medicare's Resource-Based Relative Value Scale within 90 days of knowing the final values.

More importantly to the vast majority of the state's employers, i.e. small business, the WCIRB is finally planning on reviewing its experience rating plan next year.

Currently, the split point used for calculating experience modification factors, or X-Mods, is $7,000. The portion of a claim up to $7,000 is counted in full for calculating an X-Mod, while claim costs above $7,000 are discounted.

This has a disproportionate effect on small businesses which otherwise have a good claims history but get dinged by a single costly claim. The National Council on Compensation Insurance is changing its claim points gradually such that, in 2015, it will be adjusted annually for inflation.

Coincidentally the WCIRB last Tuesday started issuing its 2013 X-mods.

So what does all this mean? In my opinion, not much. At least, not yet.

We're in a period of transition. Nobody really knows what's going on. The fact that frequency continues to increase despite a relatively stable (if not troubled) economy is disconcerting.

Throw into the mix the complete uncertainty created by drastically changing the rules of the game with no time for adjustment and we have a lack of stability and predictability.

What the purveyors of SB 863 (indeed, each reform plan since I have been in this business) is that it's not the totality of costs that drive business owners and operators nuts. It is the lack of predictability that is troublesome.

Good business management needs known factors. Business does not like anything that can not be calculated and upon which good forecasting can be made. One can not plan adequately for the future and that is what drives the bean counters running the books and business owners crazy.

Spikes in pricing, whether up or down, is maddening - albeit downward spikes don't get negative attention because generally that means more money left over at the end of the fiscal year. Upward spikes however destroy financial forecasting and create business panic when the cash isn't in the bank account at the end of the year to pay those extra, unpredicted, costs.

Continued focus on "costs" does no one who is actually responsible for business any good. The focus should be on consistency and predictability. We have an increase in frequency that can't be otherwise identified - how can frequency be controlled if the cause can't be known?

Based on nine months of experience, Milano said the projected growth in medical costs ranges from a low of 4.5% to a high of 8%. Trends in indemnity costs point to growth of between 0.6% and 3.8% in 2012, he said.

Those are wide ranges - business can not adequately plan when trends can not be succinctly tracked and identified.

SB 863 does nothing to provide business with the ability to plan. Instead it creates havoc, with the actuaries essentially making wild-assed guesses as to what the future holds.

What am I complaining about though? SB 863 is here to stay, it is the law, it is what the Brown Administration wished upon the business community of California.

So just let it be for once. When SB 863 doesn't work out the way that its proponents thought it would in a couple of years, leave it alone! This industry goes though a major change in the law every 7 years or so, which is not enough time for stabilization to occur.

Our collective short term memory loss only drives the cost of doing business in California up. Workers' compensation is not about us. It's about business environment which means that those in business need to make money at the end of the day, and need to know that they in fact can make money and how it's going to get done.

Planning. That's all businesses really want - the ability to understand what's in the way of achieving a goal and being able to plan for it. One can not manage what one does not know.

Wednesday, December 5, 2012

State Closed. Take Your Business Elsewhere.

2012 was the year California hung signs at all its border crossings:

"State Closed. Take Your Business Elsewhere."

Proposition 30, which the Brown Administration fought hard to pass, imposes retroactive income taxes and increased sales taxes to generate more money for law and emergency services, and for education without specifying how that money actually is supposed to be used, making California the most taxing state in the nation.

SB 863, which I believe was a Brown Administration capitulation to Big Business and Big Labor in exchange for their support of Prop 30, adds to the tax burden by shifting governmental responsibilities to the private sector with a small, almost hidden, provision that most commentators have failed to recognize: an amendment to Labor Code Section 3702.5(a)(1) to provide that “the cost of administration of the public self-insured program by the Director of Industrial Relations shall be borne by the Workers’ Compensation Administration Revolving Fund,” rather than by the state’s general fund.

The Department of Industrial Relations sent letters to insurers and self-insured employers on Friday advising that their workers' compensation related assessments will increase 44% next year, while self-insured employers will see a 35% hike in their assessments.

I'm old. My memory isn't that good any more. But I believe this is the single largest percentage increase in employer assessments ever.

These assessments are tacked onto policy premiums and self insured deposits to fund the operations of the Division of Workers’ Compensation and the Division of Occupational Safety and Health, and partially fund the Division of Labor Standards Enforcement (I assume it won't be long until that division is also the sole responsibility of premium assessment too).

They are, essentially, taxes but aren't called taxes because they aren't collected by the Board of Equalization (I've always thought that was the most ironic of government agency names...).

The department said it needs $565.5 million to fund these agencies, anti-fraud efforts and the uninsured employer fund in 2013, 15% more than the $492.2 million it said it needed in 2012.

This is the same department that entered the political foray by publicly supporting SB 863, and which is projecting large phantom savings from these new laws which add many layers of complexity to an already complex system using math that is so controversial that no actuarial professional can agree on whether there will be any savings at all, let alone how much.

The largest increase in aggregate assessments is in the Workers’ Compensation Administration Revolving Fund (WCARF), which funds the day-to-day operations of the Division of Workers’ Compensation. The department said it needs $303 million for the fund in 2013, 21% more than the $251.2 million needed last year.

Part of the surge in funding the WCARF is that there is less money in the kitty left over from last year than in previous budget years. In 2012, the account balance was $162.5 million. Together with debits for undercollections from the previous year, the net charged to employers was $118.4 million. For 2013, the fund balance is only $137.8 million, and the department also has to issue credits of $25.7 million for overcollections in 2012, resulting in a net assessment to employers of $190.9 million. The department's methodology is here.

The methodology published by the department, however, doesn't indicate how much of the current assessment is attributable to the shift in financial responsibility created by Labor Code 3702.5.

Another other area where legislators stuck it to California business in the 2013 assessment comes from a diversion of money done in 2011, when lawmakers passed Assembly Bill 436 by Jose Solorio, D-Santa Ana (who was also a co-author of SB 863).

AB 436 authorized a $4.3 million loan from the Uninsured Employers Benefit Trust Fund to the State Public Workers Enforcement Fund to create a new unit to monitor prevailing wage issues on public works projects.

The aggregate assessment for the uninsured employer fund increased 35% to $57.3 million in 2013 from $42.4 million in 2012. However, because the fund balance dropped to $11.9 million from $31.3 million, the net assessment on employers will be $47.3 million in 2013, more than three times the $15.3 million they paid this year.

Thank you Mr. Solorio. It's a shame that you're not in my voting district so that I could ensure my ballot was not cast in your direction.

Everything that comes under the management of the department went up:
  • The aggregate assessment for the Subsequent Injuries Benefit Trust Fund is increasing to $34.8 million from $28.3 million. The net charged to employers will increase to $24.2 million from $16.8 million.
  • The aggregate assessment for the Workers’ Compensation Fraud Account is unchanged at $53.4 million. Because of a smaller fund balance and credits for overcollections, the net charge to businesses is $52.3 million, compared to $40.2 million for 2012.
  • The aggregate assessment for the Occupational Safety and Health Fund was reduced to $59.4 million from $60.3 million. The final charge to employers, however, will increase to $38.7 million from $32.9 million.
  • The Labor Enforcement and Compliance Fund aggregate assessment increased to $57.5 million from $56.6 million. The charge to employers is increasing to $38 million from $35.8 million.
The WCARF was created in 2004 via SB 228 (Alarcon). That was a slick political maneuver by then Gov. Gray Davis to shift complete responsibility for the expenses of a public agency onto the state's businesses.

Prior to 2004 the DWC was funded 70% through the General Fund and 30% through employer policy assessments. SB 228 changed that to 100% funding through policy assessments.

The reason for the change, it was argued back in 2003, was because employers of the state deserved to have consistency, reliability and dependability on a state agency so critical to employment operations - and realistically the extra 70% on employer policies did not impose that much of a burden on any single employer.

The employer community was mad at the time, but accepted the tax increase on the basis that they would get value in return - dedicated operations to make workers' compensation go smoothly so that injured workers' disputes could be resolved more quickly, return to work faster and thereby reduce negative X-mod consequences.

But as we saw through the years since that argument was complete malarkey. There was no truth to the argument at all. In fact, during the tough times of the last recession DWC operations were curtailed just as much as those agencies subject to the General Fund.

And SB 863 did the same thing - shift complete responsibility for the expenses of public agencies onto the state's businesses.

I keep hearing anecdotally that citizens are abandoning California, that businesses are relocating, that the state is shutting out its most fervent advocates by making it near impossible to afford to live or do business here.

The optimist in me kept saying that California has one thing that no other state has and which keeps smart people here regardless of its taxes - and that would be the weather. I always figured that smart people, given a choice, will migrate to where the weather is best and will figure out how to deal with the expense of that weather.

I'm not so optimistic now. California's government is clearly saying to its people that it can not manage money, that it will use deceit and trickery to cheat more money out of its people, and that there is no accountability in the long term because politicians have no reason to be accountable - their offices are all subject to term limits so there is no "career" to be made out of consistent public service.

I love California. I'm just not IN love with California. To those of you who denigrate our (formerly) great state - I too am having a difficult time justifying why I live and do business here. At some point in time, even I will have to capitulate and realize that it just isn't worth it.

Tuesday, December 4, 2012

Nothing Says 'Jones for Governor' Better than 863

I said yesterday that California Insurance Department commissioner David Jones was not a betting man, reversing roles with the Workers' Compensation Insurance Rating Bureau (WCIRB) by setting a pure premium advisory rate that exceeded the WCIRB's Governing Committee's proposed rate.

The WCIRB's rate was issued by a divided committee against actuarial recommendations.

The WCIRB's Governing Committee recommended the commissioner set the 2013 advisory rate at $2.38, the same as the average insurer filed rate as of July 1, 2013.

WCIRB actuaries, on the other hand, said an advisory rate of $2.61 was appropriate because savings from Senate Bill 863 offset only part of the increasing costs observed throughout 2012. Additionally, the Rating Bureau said without estimated savings of $1.11 billion from the reform bill, the indicated rate would have been $2.73.

Dave Bellusci, chief actuary for the Rating Bureau, said in a public hearing on the 2013 advisory rate that the $2.61 rate was the “best estimate,” but $2.38 would fall within the range of reasonable rates.

Insurance Department staff said in the rate order that it is important to emphasize that future costs are uncertain and can’t be predicted with any precision. At the same time, efforts should be made to try to quantify the range of uncertainty.

Some people question the utility of the California Department of Insurance's advisory pure premium rate issuance.

Mark Gerlach, a consultant to the California Applicants’ Attorneys Association, told WorkCompCentral, “Setting the pure premium rate doesn’t seem to have much, if any, impact on what the rates are. It seems that if anything, insurance companies, when rates are going down are ignoring them, and when they’re going up, use it as an excuse to raise rates. I don’t know what the process yields.”

Likewise, on the employer side, Jerry Azevedo, a spokesman for the Workers’ Compensation Action Network, said the commissioner's rate order sends a message that everyone needs to be realistic in their expectations for savings from SB 863.

The commissioner’s order expressly states that “there is no sound actuarial basis for the Governing Committee’s decision.”

Azevedo told WorkCompCentral in October following the WCIRB's recommendation that, “It’s clear from the bureau’s announcement that the recommended pure premium rate should have been an increase based on actuarial science alone. But, the Governing Committee made a decision that was reflective of the high degree of uncertainty surrounding the reforms. It’s a scenario in which it really is going to be a carrier to carrier decision about how they feel about that uncertainty.”

It was noted in the story that in three of the past four recent years, the commissioner has announced the Jan. 1 rate before the end of the first week in November.

The department by law has until Nov. 30 to schedule a hearing and 30 days from the close of the record to issue a decision.

Rate changes have to be on file for 30 days before they can take effect. Therefore, carriers who plan to change their rates at the start of the year have to submit a filing by Dec. 1.

Many carriers wait for the order before setting their rates in a competitive comparison setting - the advisory rate helps carriers determine whether they are seeing all of the elements of claim expenses.

This uncertainty didn't slow down State Fund from announcing its rates - but the State Fund's rates were already very high compared to the rest of the carriers so its 7% reduction in current rates isn't really relevant to the rest of the industry except for setting up a competitive comparison.

With SB 863 there is more uncertainty than in any previous reform legislation - the changes are so vast, so untested, so completely different, that there is no actuarial experience with the processes that will ultimately impact claims administration and costs.

In the meantime, where are the actuaries that predicted all of the cost savings in SB 863?

If you recall, even while SB 863 was still undergoing massive changes as proponents sought support from Business and Labor, the rallying cry was that the landmark bill would generate hundreds of millions of dollars in savings while increasing indemnity to injured workers.

Christine Baker, director of the Department of Industrial Relations, not only said the administration supports the proposal when it was announced because it “is good for workers and employers and good for California,” the Department took the unprecedented move of going political with a latter recommendation to the legislature in support of the bill.

Baker had said the bill would reduce frictional costs, treatment delays, lack of oversight of medical networks and other inefficiencies while also increasing permanent disability benefits by more than $700 million.

The estimates were all over the map.

State Fund said the net benefit of SB 863 would be $110 million.

The WCIRB in September projected that the benefit increase in SB 863, phased-in over two years, would increase costs by $510 million in 2013 and $590 million in 2014. At the same time, reform provisions, including independent medical review, lien filing fees and reduced reimbursement for ambulatory surgery centers, would offset the benefit increase and generate net savings of $1.2 billion in 2013 and annual savings of $610 million beginning in 2014.

International brokerage firm, AON, said everyone was full of it, and predicted that the permanent disability benefit increase in SB 863 will drive costs up by $982 million in 2014. At the same time, Aon said cost-cutting provisions will produce net savings of only $631 million, increasing system costs by a net of $351 million a year beginning in 2014.

I said yesterday, after hearing speakers on Saturday take apart the language of SB 863, that there were more holes in the bill than previously anticipated and its my impression that this swiss cheese of a law won't hold any water. Now that I've inspected the bill with more circumspection, it seems to me that savings from SB 863 are more a phantasm than anything else.

If SB 863 produces any net savings and results in lower rates, then I will gladly eat my words, and issue a public apology for doubting the skills and fortitude of the bill's supporters.

But what about the commissioner's pure premium advisory rate? What relevance does that have? It is not binding. It is generally too late for carriers to rely upon in setting their rates.

In my opinion, what's most important about Jones' rate order is that Jones and his staff simply don't believe in SB 863. They aren't buying into the political bovine excrement.

The insurance commissioner post has been used to launch runs for governor since the office became an elected position with John Garamendi years ago. Jones may simply be stating that he is a politician that isn't going to buy into the rhetoric, and that he is going to chart his own course; that he is willing to stand up to the pressure of optimists when the facts don't support it.

I don't know if Jones will run for governor. If he does, his likely campaign will be that he was the only politician that was honest about workers' compensation, so the people can trust that he will also be honest about the rest of California.

It's a smart political move. The insurance commissioner is to regulate the insurance industry. What better way to say to the people of this state that he won't succumb to special interest groups or big money than to tell these people that he can see through the nonsense?

Jones the Realist - campaign 2014. What do you think?

Monday, December 3, 2012

SB 863 And Rates: Jones Not A Betting Man

What does David Jones, California's elected Insurance Commissioner, know about SB 863 that even the Workers' Compensation Insurance Rating Bureau (WCIRB) doesn't know?

Honestly, I don't know. But Jones on Friday recommended a pure premium rate of $2.56 per $100 of payroll, compared to the $2.38 rate recommended by the WCIRB's Governing Committee.

"This is a case where the math matters and actuarial science is the critical component in determining a rate that will maintain insurers’ ability to pay claims," Jones said in a press release. "We cannot afford to set the pure premium rate based on over estimates of the potential reform savings that Senate Bill 863 will bring when insurers are already paying out more in claims than they are collecting in premiums.

"Today, companies are paying out 116% more in claims than they are collecting in premium. It’s a recipe for history to repeat itself with a significant number of insurers becoming insolvent just a few years ago. The actuarial science is clear on this matter, and while I don’t have the authority to set the rates, I will advise insurers to use pure premium rates that are sufficient."

What Jones is really saying, it seems to me, is that he doesn't know how SB 863 is going to affect the costs and benefits in the system any more than anyone else at this point in time.

And in an unusual reversal of roles, Jones essentially alleges the WCIRB in engaging in politics instead of sound actuarial discipline. Citing the work of Insurance Department Chief Actuary Ron Dahlquist and Senior Casualty Actuary Giovannie Muzzarelli, Jones determined that the WCIRB's recommended rate is insufficient to cover workers' compensation insurers' rising loss costs:

"The WCIRB has failed to adhere to its own actuarial analysis and failed to provide any additional support or analysis based upon the factors under which insurer rates would be reviewed and determined to be reasonable and actuarially sound."

According to news of the event, Jones' pure premium rate order is simply a realistic reflection of what is going on with the REAL market in California's workers' compensation system - the market that is the majority of employers in the state but which have the least say in the formulation of its laws: small employers.

Betsey Brewer, senior vice president of Pasadena insurance broker The Rule Co., told WorkCompCentral she is seeing workers’ compensation prices going up for small businesses with rate increases or between 10% and 15%, and some as high as 20%.

Brewer said carriers who had been absorbing increased claims costs are starting to tighten up. Some large companies have dramatically tightened up their underwriting standards in California, and Brewer said she routinely cautions clients that they might be forced to purchase coverage from a different carrier in a year or two, depending on appetite.

This means that small employers may have to go with the State Fund, which had filed pure premium rate is $4.37 per $100 of payroll. Even if the State Fund lowers its rate 7% as approved by its board of directors in October, that would still put its pure premium rate at $4.06, 37% higher than market rates.

Other experts interviewed by WorkCompCentral News essentially all said the market in California is hardening and carriers aren't buying into the politics of the advisory pure premium rate.

Carriers have good reason to be pessimistic.

At the WorkCompCentral Education Holiday Party this past Saturday, speaker after speaker uncovered little elements of SB 863 that are at the very least vague, but to me more alarming; huge holes that large trucks of indemnity will flow through.

While much of the current wisdom is that we won't know how SB 863 rolls out until regulations are issued, one thing I have determined that is absolutely demonstrable already - SB 863 is introducing a huge new level of complexity, and complexity ALWAYS drives costs up.


The Division of Workers' Compensation is busy creating new rules, and new forms; dozens of new forms it seems (and DWC is hardly through the rule making process). The new rules are complex, because the underlying concepts are complex. The procedural tools that SB 863 introduced require new tooling in claims departments, new programming, new procedures.

All of these changes require expenditures of time and mostly money. This expense has to paid somehow.

As I listened to the speakers and over and over again I couldn't help but think how much work attorneys are going to have with endless triable issues arising over things such as what is a "catastrophic" injury and conflicts with statutory presumptions of 100% disability versus AMA Guide definitions (Does "paralysis" include partial paralysis due to a stroke? Does "amputation" mean an entire limb, or just a digit?).

As I see SB 863 develop into "the law" I have to agree with Jones and his actuaries. The SB 863 panacea that was sold is not going to be realized, at least for some time. There will be a big change in how medical treatment and payment for treatment is handled, but whether or not that actually produces savings won't be understood for a couple of years.

Until then, from what I heard and am now understanding, the motivation behind litigating claims remains very, very high: that is the prospect of larger indemnity awards for comparatively minor disabilities.

We'll see how carriers react now that Jones has issued his rate recommendation. In September, 25 carriers filed for pure premium rate increases that averaged 14.3%. In October, two carriers filed for no rate change, while American Alternative Insurance Corp. filed for a 10.7% increase.

As of Friday evening, no carrier had filed a pure premium rate with the department since Oct. 16. Some feel that the allure of California's volume creates good competition between carriers depending upon various business models.

While some carriers will reduce their exposure on new policies, other insurers are going to sell comp policies only as part of a package that includes another line of coverage. And as much as carriers want and need to improve profitability, they can’t significantly increase premiums if they want to keep writing in California.

Time will tell. Workers' compensation is a political animal. There are always winners and losers, and the roster of winners and losers rotates with every "reform." What Jones is saying is that he's not a betting man. Or that least the odds-makers aren't providing any clear directions on the bet.