Tuesday, August 20, 2013

Do We Focus On Short Term Too Much?

If there was one theme that over road any other in the Blogger's Panel session at the 68th Annual WCI Conference in Orlando, FL yesterday, it was that workers' compensation in general has become so complex, so micro-managed by regulation and law, so distant from its original purpose, that there is no where for the cost of maintaining the system but to go up.

Mark Walls commented that in his prior life as an adjuster he did everything on a claim file - from arranging medical appointments for treatment and/or evaluation, to determining "fair and reasonable" in payment of bills, to both telephone and in person interviews of claimants to get their stories.

I recall a case early in my lawyer career that was clear to me to be a disaster case where the claimant, who had prior significant psychological trauma but had "recovered" and operated in the labor market without impairment or disability for 20 years, decompensated during an unfortunate situation with her trusted employer.

Three months into that claim I was able to take the claimant's deposition, which was an all-day, trying affair. It was clear to me that this was a case of significant liability and I was able to settle the case THAT day by calling the adjuster and securing $70,000 for a compromise and release.

These vignettes DON'T happen today. Indeed, these vignettes WON'T happen today - not with all of the peripheral players involved spawned by "cost control" laws and regulations that have the intent of regulating vendor behavior but also have the inverse effect of creating more steps in claim management and removing more control from the claim adjuster to essentially micro-manage claims from a distant, less-human, hands-off style.

This comes at a cost - and I think a big cost that workers' compensation needs to deal with. These costs were introduced, in my opinion, because of problems and issues that arise over a relatively short period of time given consideration to the evolution of law, regulation and jurisprudence, so that remedies and solutions don't mature before there is something new introduced that may or may not be necessary.

Now the National Academy of Social Insurance, a sort of think-tank of scholars, academicians, lawyers, doctors, researchers, etc. from around the country, has released a report on the cost and benefit trends of workers' compensation from a national perspective.

Here are snippets from their press release:

Total benefits from 2010 to 2011 rose by 3.5 percent to $60.2 billion. The benefits include a 4.5 percent rise in medical care spending to $29.9 billion and a 2.6 percent rise in wage replacement benefits to $30.3 billion. Total costs to employers rose by 7.1 percent to $77.1 billion.

The new report shows changes in coverage, benefits, and employer costs for all 50 states and the District of Columbia. State-level changes in 2011 include: 
  • Coverage and wages increased in all 50 states and the District of Columbia.  
  • Total benefits paid to injured workers increased in 29 jurisdictions. However, benefits as a percent of total wages increased in only 17. 
  • Employers' costs of workers' compensation as a percent of total wages increased in 31 states, and remained unchanged in four. 
  • The share of benefits paid for medical care exceeded 50 percent in 33 states. 
Workers' Compensation Benefits, Coverage, and Costs, 2011

Aggregate Amounts
Percent Change
Covered workers (in thousands)
Covered wages (in billions)
Workers' compensation benefits (in billions)
    Medical benefits
    Cash benefits
Employment costs (in billions)
Amounts per $100 of covered wages
Dollar Change
Benefits paid
    Medical payments
    Cash payments to workers
Employer costs
Source: National Academy of Social Insurance estimates.

There were also 22 states identified where the change in benefits paid went down.

"'Workers' compensation often grows with the growth in employment and earnings, said Marjorie Baldwin, chair of NASI's Workers' Compensation Data Panel and Professor of Economics in the W.P. Carey School of Business at Arizona State University. When benefits and costs are measured relative to total covered wages, then benefits remained unchanged, and costs to employers rose very modestly (to $1.27 per $100 of wages) after declining in the previous five years."

So here's the anomaly - benefits have remained, on a national scale, relatively flat, at least according to NASI. And so have employer costs.

This may conflict with other agencies data and reports.

And it occurs to me that perhaps in observing workers' compensation that too much focus is on the short term; that over the long term costs and expenses may not need radical changes.

Wall Street is criticized because it focuses on the short term. Trends are measured against quarterly reports. If there is a downtick in profitability from one quarter to the next there is panic and stocks get sold at decreasing values. If there is profit growth from one quarter to the next there is purchasing, and demand constricting supply which causes share prices to increase.

Wall Street, for better or worse, doesn't generally focus on the long term.

I think that most of us - legislators, regulators, administrators - in workers' compensation don't focus on the long term - at least not much past the general seven to eight year "cycle" that begets typically reform. We come up with solutions to problems when solutions already in place aren't allowed to mature to be effective.

NASI recognizes that long term analysis is important when looking at workers' compensation trends:

"Workers' comp benefits that are paid out are actually paid out for injuries that were caused in the years prior (to the study)," Ishita Sengupta, director of workers' compensation for NASI, said. For instance, the 2011 report on total workers' compensation benefits paid includes claims for injuries that occurred during years such as 2009 and 2010, when fewer workers were employed.

"There is a slight lag in (the data), because of the way workers' compensation payments are made," Sengupta said.

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