The REAL Objection to Opt Out

I have never really understood why the Property Casualty Insurers Association of America has been so vehemently against opt out.

While it seems that opt out returned to the back burner for this year with constitutional defeats in Oklahoma (also beguiling traditional OK comp) and political stalemate in other states, PCI has reignited the debate with an inflammatory paper.

The basic arguments, which PCI supports with some data, is that opt out results in costs shifting to other systems, and that a lack of standards and transparency is detrimental to consumers (i.e. injured workers).

PCI also argues that opt out is all about saving employers money to the detriment of consumers by denying more claims earlier and paying less with capitations and restrictions not found in traditional comp.

I get that alternative work injury systems need to meet certain standards and need to be more transparent to consumers - to me that’s a no brainer.

But the objections that PCI in particular raises are exactly the same complaints made against traditional work comp: inadequate benefits, unnecessary delays, cost shifting, etc.

Each statistic cited by PCI against opt out can be asserted against traditional work comp - just use another study or data source.

For instance, just a couple of years ago, Paul Leigh of University of California at Davis, and lead author of the study, Workers' Compensation Benefits and Shifting Costs for Occupational Injury and Illness, told WorkCompCentral, "We're all paying higher Medicare and income taxes to help cover (the costs not paid by workers' compensation.)"

That study, published in the April 2012 edition of the Journal of Occupational and Environmental Medicine, found almost 80% of workers' compensation costs are being covered outside of workers' compensation claims systems. That amounts to roughly $198 billion of the estimated $250 billion in annual costs for work-related injuries and illnesses in 2007. Just $51.7 billion, or 21%, of those costs were covered by workers' compensation, the study said.

Of the $250 billion price tag for work-related injury costs, the Leigh study found $67.09 billion of that came from medical care costs, while $182.54 billion was related to lost productivity.

In terms of the medical costs, $29.86 billion was paid by workers' compensation, $14.22 billion was picked up by other health insurance, $10.38 billion was covered by the injured workers and their families and Medicare and Medicaid picked up $7.16 billion and $5.47 billion of the tab, respectively.

The study drew criticism from the work comp crowd defending its practices, challenging the data, and anecdotally attempts to counter argue, with limited success.

PCI does the same thing with its study. If one digs deep enough and studies the study I'm sure one would find fault with the data and the reporting on cost shifting - because the truth is that absolutely no one has a fix on that topic. It is basically impossible to study cost shifting since the point of first medical contact determines occupational characteristics and that determination follows the claim nearly without question most of the time.

My good friend, Trey Gillespie, PCI assistant vice president of workers’ compensation, told WorkCompCentral that, "it really goes back to the fundamental tenets of workers’ compensation: protecting injured workers and their families and protecting taxpayers. The general consensus is that the way programs should work is to protect injured workers and taxpayers and avoid cost-shifting.”

Of course! All work injury protection systems should do that.

But they don't.

That's what the ProPublica and Reveal series of critical articles about workers' compensation programs across the country tell us, both anecdotally and statistically: injured workers aren't protected, costs are shifted onto other programs, and taxpayers are paying an unfair portion of what work comp should be paying.

Indeed, in October, 10 federal lawmakers asked the U.S. Department of Labor for greater oversight of the state-run workers’ compensation system, citing “a pattern of detrimental changes to state workers’ compensation laws and the resulting cost shift to public programs” as proof the oversight was needed.

Then I started thinking about the one truism that governs human behavior nearly universally until someone is about 90 years old (and even then!): every single person protects their own interests first.

And I thought of PCI’s name: Property and Casualty Insurers Association of America; “property and casualty”. Aye! There's the rub!!

There’s no room for P&C in opt out! ERISA based opt out uses only health insurance and disability insurance.

Work comp is the mainstay of the P&C industry, the single biggest commercial line, and the gateway to a whole host of much more profitable lines.

If opt out spreads beyond Texas it is hugely threatening to the interests of the PCI members because they stand to lose considerable business, particularly if opt out migrates to the bigger P&C states.

PCI is protecting its own interests (or those of its members) by objecting to opt out.

And I don't blame them. Their impression of this threat is real.

Michael Duff, a professor of workers’ compensation law at the University of Wyoming, told WorkCompCentral, “These are interested observers. They’re going to have an agenda. They represent insurers who are in the workers’ comp business.”

Bingo.

“Every commercial actor that participates in traditional workers’ compensation has an interest in seeing traditional workers’ compensation continue," Duff went on. “But,” he added, “that traditional workers’ compensation imposes costs on employers. There is now a group of employers who would like to pay less, and Bill Minick has developed a commercial product that is in competition with this other conceptual approach to handling things.”

Here's THE fact: traditional workers' compensation and ANY alternative work injury protection plan require vendors pitching wares and services to make the systems work.

Insurance companies are as much a vendor in either scenario as physicians, bill review companies, utilization review companies, attorneys, vocational counselors, etc.

Each and every single one makes a buck off work comp, and each and every one has an interest in maintaining the status quo.

All vendors have a business interest to promote and protect, otherwise they would not be in business. For property/casualty insurers, money comes in via premium, and they hope only a little goes out in claims so that shareholders get some return.

The spigot on outgoing dollars is tightly controlled by regulation (and many argue not tightly enough), and if it weren't then the interests of the insurance company would be even more weighted against those of the customer (i.e. premium paying employer) and consumer (i.e. injured worker).

That's the bottom line. Arguing that one system is better than the other without admitting one's own special interest is simply hypocrisy.

Workers' compensation is going through some pretty traumatic soul searching right now. Employers leading the debate are asking, "why stay in a system that facilitates vendors' interests ahead of employers or workers?"

THAT's the question that BOTH the P&C industry and the opt out movement need to answer. Further debate about the merits of one over the other is simply sophistry.