Uncompensated Californians

The third in a series, WorkCompCentral's latest special report on benefit adequacy, specifically temporary disability indemnity, takes a look at California.

This is, of course, of particular interest to me. I'm from California and as much as the state is denigrated by the rest of the workers' compensation community, it's temporary disability benefit is one of the most generous - perhaps because the cost of living in the Golden State is one of the highest.

It didn't use to be that way. For many years the TTD rate was stuck at abysmally low, static levels. The statute (LC 4453) was changed so that, beginning in 2004, the TTD rate would be tied to inflation as represented by the State Average Weekly Wage as determined by the Federal Department of Labor. Since then the SAWW has inflated 69%...

Still, even tied to inflation, what really happens when someone has a work injury and is off work for a protracted period? The statute, like many states, limits TTD to 2/3rds the employee's wages, subject to a ceiling, and with a maximum duration.

But California is a bit more liberal in terms of waiting periods - only 3 days of total disability before the benefit kicks in, and then retroactive to the first day of disability if more than 14 days pass. Most states have a 7 day waiting period and retroactivity doesn't occur unless more than 30 days pass without employment.

Our study examines two workers diametrically opposed in the employment sector - a farm worker who gets injured on the job, and the physical therapist assigned his case; a low wage earner and a high wage earner. As you will note from the report, neither are adequately protected by California's TTD law, and both suffer long term financial consequences far beyond the direct injury sequelae.

While you should read the report, and draw your own conclusions, here are the basics:

Jose, the farm worker, sustained an actual net loss in take home pay of 16% - nearly a fifth of his normal net pay. To a person living paycheck to paycheck, i.e. essentially on the edge, 16% is a big number, particularly if your average pay is only $21,900 per year...

Jose had to forgo savings, had to forgo support to his family in Mexico, and ends up having to rely on the generosity of his roommate to overcompensate for his financial detriment.

Worse, Jose no longer contributes to the economy, and comes out of workers' compensation a public benefit dependent.

One might think things would be different for Mike, Jose's physical therapist.

Mike's average annual wages are decidedly upper middle class at around $100,000. But kids to put through school, a mortgage, car payments, and the basics of a middle income lifestyle doen't leave a whole lot of room for a dark day, even with savings.

Mike's budget was $5,769 per month. The adjuster couldn't figure out the TTD rate because she was confused how to calculate wages when pay is based on case load (to me that's shocking and, frankly, completely unacceptable - it's a very easy calculation...) so she just didn't pay (again, completely shocking and unacceptable) and then when she did pay the amount was wrong.

But even after Mike got an attorney who was able to "school" the adjuster on how to calculate the TTD rate, that rate is capped far below Mike's needs. Indeed, because of the adjuster's error Mike had to tap his 401K and, if not repaid timely, will suffer additional economic harm.

These Special Reports are not intended to advocate for reform one way or the other, or to cast aspersion on the workers' compensation system - rather they are intended to highlight issues that we, as a society, need to take a serious look at.

I observed yesterday that perhaps the workers' compensation insurance industry's steadfast battle for work safety may, in the end, foster the irrelevancy of such insurance for the vast majority of industries and employers.

There's a palpable tension in workers' compensation that's more acute than it has been in some time.

The WorkCompCentral reports on benefit adequacy compel, I think, reviewing the basic social policies that created workers' compensation in the first place.

It comes down to value. If employers are paying too much for too little, will the industry survive? If enough people suffer financial harm from a privatized social benefit system that is inadequate, is there reason to keep it in place?

We, as an industry responsible to society, have some soul searching to do.

The Uncompensated Worker series, along with all other WorkCompCentral special reports, can be downloaded at https://www.workcompcentral.com/news/special-reports/. The reports are free, though you will need to register to retrieve the reports, unless you are already logged in as a member.

Broker Schmoker Rebuttal

My last post before the holiday weekend was "Broker Schmoker."

The theme was just because a broker (or for that matter a lawyer or risk manager) was involved in the configuration of a work comp program for an employer with 500 workers and a $20 million payroll, doesn't necessarily mean that issues of deceit, corruption or cheating could be discounted.

My post was in response to the news that pending before the California state legislature is AB 1922, by Assemblyman Tom Daly, D-Anaheim - the insurance industry's answer to the Equity Comp scandal, where Berkshire Hathaway subsidiaries, California Insurance Co. and Applied Underwriters Captive Risk Assurance Co. were ordered to cease and desist from selling the program because contract documents were not filed with, nor approved by, the Department of Insurance.

My viewpoint is based on personal experience in the work comp industry negotiating coverage for employers, from the earlier bid rigging scandal, from the all too often news story of a broker stealing a client's money (by failing to pay it to the underwriting carrier), and news of other nefarious dealings where fancy terms were used to hide risk transactions to escape DOI scrutiny.

"Broker Schmoker" touch a couple of nerves, and sent one insurance agent over the top. He protested to my post by canceling his membership to WorkCompCentral.

So I asked him to give me his viewpoint and state his case. And he did!

But, it turns out that my post was just the tipping point. This agent had taken one too many punches from the media and was done with it.

Here's his response, edited to eliminate personally identifiable information since I don't have his permission to publish it (I asked but he had already taken off for a vacation).

See if you agree:

**********

David,

Thanks for reaching out.

I will be brief for now, as I am cleaning up a few things, and adding a few days off to the long weekend.

First, on the Equity Comp issue ... my opposition to the selling this product is well known in the agent community that I serve.  But, probably not for the same reasons that the Insurance Department of California is asserting.   Have you read the Equity Comp contract?  If so, I suspect you could find countless issues to write about before you get to agents.

As mentioned, even though I advise against selling this product, I disagree with the Department of CA on the reasons they are shutting it down.  It is a Single Cell Protected Captive.  Does that mean that all Single Cell Protected Captive Managers will get cease and desist orders?  

On the issue of agents, your blog may have been the tipping point.  Agents have been getting dismissed or criticized from the work comp blogosphere and elsewhere.  In just the past few weeks, Bob Wilson posted that, "most agents are more interested in getting the best doughnuts at the Chamber of Commerce  breakfast."  His perception of agents is probably why not a single current or former agent was invited to join the "National Conversation" on work comp.  In my opinion, excluding agents was not only ill informed, but creates barriers to achieving the group's objectives.

Then, I noticed that the WCI 360 "Agent Track" in Orlando next month does not have a single current or former agent presenting.  They put NCCI in charge of managing the "Agent Track."  That decision exemplifies the lack of understanding of agents and the work they do.

And, Mark Walls is going to give the "State of the WC Market" to an agent audience at the conference.  What does he know about the role and responsibilities of agents? Agents will care about how the State of the Market affects their client and their agencies.  Not as he mentioned in a May, 2016 Insurance Journal article on the State of the WC Market, "employers with good loss control and return-to-work programs will find more insurance companies wanting their business."  Agents know that already, and don't want to pay money to hear that dribble. 

So, "doughnut eating, commission" hounds in combination tweaked me, and precipitated an "enough is enough" position.  Yes, I stipulate that there are some bad agents, just as in any profession. However, too many Bloggers, some of which have never actually done anything in the work comp field but browse the internet, copy material and paste it elsewhere, and attend conferences, are trashing or dismissing agents, which I find offensive and just plain wrong.    

Agents have two national associations along with 50 state chapters.  It is long past time for the associations to redeploy some of their resources and push back against the bloggers that don't understand agents and trash them.  In addition, almost every employer has an agent, but not very many have a Blogger, "Thought Leader" or social media maven to assist them.  Agents need to get engaged and point out that many of those who are criticizing them are just empty suits and talking heads that have never sat across from an employer with serious and complex problems.  Or, managed those complexities and assisted business owners to avoid financial devastation.

Taking agents out of the loop takes away a resource that can't easily be replaced.  Perhaps, the Blogger community can hit the streets and get engaged with employers where the hard work gets done.  However, I suspect it is far easier to talk about what needs to be done than to actually do it. 

Plus, I hear Bloggers get to work in their underwear and eat Cheetos all day.  Hey, wait a minute ... that sounds good.   

**********

So there you go - agents in general do good things for their employer clients and the workers of those businesses, which is why you should nominate agents and brokers who do good for a Comp Laude Award. 

What better way to tell stories where agents and brokers have prevented financial devastation? 

Nominations have been extended to July 10, so to paraphrase the B-52's "Butter Bean": "don't you wait, don't you linger, Comp Laude will slip through your finger!"

For the record, I don't work in my underwear and don't like Cheetos...

Broker Schmoker

Insurance is a highly regulated industry because it involves lots of money exchanging hands, which influences greed, and some can't control themselves.

Workers' compensation requires even tighter regulation because, in most states, it is essentially a captive market. Where workers' compensation is compulsory, free market theory is not adequate to keep people from getting ripped off.

Deceit is particularly acute when the lexicon of insurance is bandied about in the sales and purchase phase of insurance.

I'm willing to bet that even if you are in the workers' compensation industry, you'd have a tough time with these phrases: guaranteed cost, retrospective rating, reinsurance participation, collateral agreement, reinsurance treaty, retrocession, captive facility....

These are the terms that are at the heart of the California Department of Insurance's action against Berkshire Hathaway affiliates that were ordered to stop issuing or renewing EquityComp policies.

CDI yesterday took the unusual action of issuing a cease and desist order against California Insurance Co. and Applied Underwriters Captive Risk Assurance Co. for failing to file contracts and forms related to those fancy terms a couple of paragraphs up.

The problem, according to CDI, is that contracts that aren't approved by the department modify terms of approved forms and agreements placing policy holders (i.e. employers) at great risk of subsequent substantial debt because the agreements require the employer to reimburse the insurers for claim expenses.

In other words, a guaranteed cost program, where the employer knows up front what insurance is going to cost, gets substituted for a reimbursement program where the employer not only doesn't know what the end cost is going to be, but doesn't have any control over that cost.

Applied Underwriters and California Insurance are appealing CDI's action. They say the paper they are using doesn't require department approval, because of all the fancy terms they contain...

In the meantime, and partly in response to CDI's action, the insurance industry is sponsoring AB 1922, by Assemblyman Tom Daly, D-Anaheim.

The bill would excuse carriers from filing side agreements for policies with a deductible of $250,000 or more for large employers that satisfy three of four criteria, including:

• Being represented by a broker during negotiations as well as a full-time risk manager or attorney.
• Employing 500 or more workers.
• Having annual payroll of $20 million or more.
• Having a manual standard work comp premium of more than $1 million.

Many years ago my law firm was involved in negotiating a "large deductible" policy for an employer of the size described in AB 1922. Brokers were involved. They didn't help. In fact, they hindered the process. Brokers get commissions. Commissions don't get paid to either the buying or selling broker unless there's a sale.

In other words there's great incentive for brokers on both sides to push a sale through regardless of benefit, or detriment, to the employer/customer.

Just because an employer is represented by a broker and/or risk manager and/or attorney doesn't make the employer more sophisticated or less vulnerable to greed.

Acute Personalities

I have an old saying.

Perhaps someone else said it. I don't recall if I acquired it elsewhere - so if this quote belongs to someone else I apologize for the copyright violation:

"People don't change; their personalities just become more acute."

This applies aptly to workers' compensation.

Here's the headline: "Companies Charged in Federal Fraud Sweep Also Dabbled in Comp."

Here's the summary:

The U.S. Justice Department said its "coordinated takedown" of 301 people alleged to have generated about $900 million in fraudulent billings was the largest in history in terms of the number of defendants and losses. Court documents allege the defendants participated in a number of schemes that included paying kickbacks to patient recruiters, beneficiaries and others so providers could submit bills to Medicare and Tricare — a federal program providing health care for members of the military — for services that were medically unnecessary or never performed.

A WorkCompCentral review found some of the companies also operate in California’s comp system.

They're all the same players we've come to know and who somehow avoid discipline.

Oh, they're all in Southern California, as mentioned Friday...

Our headline is misleading - they didn't just dabble; these people terrorized work comp by rendering unnecessary medical "treatment" (how can it be treatment if they weren't treating anything but their wallets?), paying kickbacks, falsifying billings, harming people...

Will things change when the crimes get punished?

Or will the personality of comp just become more acute?

On The Record

Medical fraud isn't restricted to workers' compensation, but work comp can be the centerpiece.

Compound medications, illegal referral fees, attempts to conceal under "advise of counsel," undercover agents, federal indictments, and an admission on tape that, “we’re a very small pimple of everything that’s going on.”

I won't go into more here because WorkCompCentral has already been threatened with a libel suit for publishing the truth. 

But if you really want to know how pervasive, extensive and profitable medical fraud is, you need to read the story, "Federal Health Care Bust Has Ties to SoCal Work Comp," about D.F., M.K., R.R. and a few other names familiar to California workers' compensation observers here:

https://www.workcompcentral.com/news/story/id/e558db203b445487a1afa755b53f55730f8e9141.

Oh yeah, it's no coincidence that it all happens in Southern California...

California Conundrum Part 3

So what are the reasons that California is so costly to employers and their carriers, yet so stingy in benefits to system consumers - injured workers?

That's the question in part three of this series that originates from the annual meeting of the Workers' Compensation Insurance Rating Bureau last week in San Francisco.

Two different panels comprised of 13 people from different sectors of the workers' compensation industry all had opinions. Nearly thirteen different opinions.

The first panel was the Research Forum consisting of California Workers' Compensation Institute's chief, Alex Swedlow, and WCIRB researchers Ward Brooks and Tony Milano, moderated by WCIRB Chief Actuary David Bellusci.

The numbers in the data show that a driver is continuous trauma claims increasing particularly in the Los Angeles area - 14.9% of all claims in the LA area are CT compared to 7.7% for rest of the state. Those claims are also far more likely to be have attorney involvement, post termination, or involve psyche/sleep/multiple parts; so not only does the area have a higher percent of CT claims, but those cases also have more complex characteristics.

Bowzer's confused too...

One of the medical cost driver characteristics noted by the panel was comorbidities, which prompted Swedlow's comment, "physicians are very good at billing for things they are going to get paid for..."

The speed at which claims are reported and thereafter managed matters a lot relative to cost, return to work and related issues. In Los Angeles the average time for a claim to be reported is 24.2 days post "injury" (in quotes because of how that may be measured) while the state average is 15.5 days.

In addition, this panel said that the overall litigation rate is much higher in souther part of the state contributes to delay as well as when treatment actually begins. The statewide average is 23.6 days from DOI to beginning of med treatment; the fastest times are in Colusa and Humboldt counties, the slowest Lassen (37 days), Shasta, San Mateo Contra Costa and then LA (29 days). This panel said that the introduction of attorney involvement is the biggest factor in slowing down delivery of care (which is an observation supported by NoCal applicant attorney Gary Nelson - see below).

The afternoon panel was a more contentious debate. Everyone had an opinion on the conundrum; not everyone agreed.

Christine Baker, Director Department of Industrial Relations, made one of the most poignant statements of the meeting: trust in the system has been eroding. She acknowledged that in the long run the various disparate systems of delivering medical care and providing disability protection to workers may not be financially tenable to employers in California. Baker and her team are targeting fraud in a big way marrying up data from Electronic Adjudication Management System and Independent Medical Review to find the abusers, but she also acknowledged that targeting and eliminating fraud is going to take cooperation of everyone in the system.

Basil Besh, M.D. of the FORM Hand, Wrist & Elbow Institute said we have fixed the wrong problems; why do we need both Medical Provider Networks and Utilization Review? "We punish the many for the symptoms of a few," Besh said.

Ronnie Caplane, formerly chairperson of the Workers’ Compensation Appeals Board, and now working for The Zenith Insurance Co, said reform can only happen if we bring everyone to the table and discuss solutions, that we all have the same goals. But, as the system currently operates, the injured worker is seen as carrion - everyone feeds off them, and everyone goes home with a full belly except the injured worker. Currently everyone is pointing fingers at the other to place blame, rather than get together for a common solution.

Cynthia Casey, Esq, is a defense attorney from Southern California and placed blame for the CT epidemic in the LA area on workers' compensation judges - for some reason the judges don't want to go to trial on cases of post termination CTs despite the anti-post term language of the statute.

But Van Nuys district office Workers' Compensation Judge Michael Cole disputed this, saying that the statue is poorly written and provides a loophole for those cases; he said the biggest difference between the north and south are liens, no one will take a case on a lien basis in the north.

Don Marshall of the California Fraud Assessment Commission said that fraud is a small percentage of cases that has a big impact. The one difficulty he notes is that employers get upset at employees who they perceive are ripping them off because it is personal, but the reality is medical and premium fraud are the problem areas. He thinks prosecutors are finally starting to get it. Marshall held up a box of a "workers compensation drug testing" collection kit that the doctor gets before even seeing the patient. "Injured workers have become pawns that are traded between providers to generate income," Marshall noted.

Modesto applicant attorney Gary Nelson observed that he went to a continuing education class in Southern California where the topic was 36 ways to get out of an MPN. He commented that he couldn't understand why that would be necessary because in NorCal they just don't do it. Nelson is of the opinion that evidence based guidelines are there just to deny treatment, that occupational medical clinics are all about not spending money so treatment is delayed, but humans don't like to wait so injured workers want out of those clinic situations.

Mark Walls of Safety National Ins. Co. thinks California is performing exactly as designed. Other states don't have liens and CT claims, and the reason 50% of indemnity claims are litigated is because it is a system designed for attorneys by attorneys. Walls noted that group health has formularies, guidelines, networks, etc. But when those are imposed in work comp they are objectionable - why? Walls said that outcomes in work comp are by far worse than in group health and that it doesn't work better when we just let people do things they want.

Finally Bill Zachry of Vons/Safeway/Albertsons said the real problem is that the incentives are not in the right places, noting that many VPs of insurance claims departments are misincentivized too. The front line supervisor, the person to whom the injured worker reports directly to, is key - there is not enough communication from that supervisor which tells the injured worker that they don't really care. Ignoring the worker is the greatest cause of litigation said Zachry, that any delay in medical care also drives litigation so everyone has to report immediately.

So what's wrong with the California system? As you can see, everyone has their opinion. There's probably some truth to all of it.

California Conundrum Part 2

Friday was the first part of this series about the California Conundrum, the theme of the Annual Workers' Compensation Insurance Rating Bureau meeting held in San Francisco last Thursday.

This second part is about the state of the workers' compensation insurance industry in California.

Note readers - this is about the INSURANCE industry! Not the state of the system. Not self insureds. Not employers, workers, other vendors... Simply how the insurance industry sees itself performing in the biggest workers' compensation market, by far, in the United States.

The information was presented by Chief Actuary of the WCIRB, Dave Bellusci.

Here's the bottom line, if you don't wish to read the statistical information further: California is the biggest, most competitive, most costly, workers' compensation insurance market in the US.

Did I say costly?

So what else is new?

2015 marked the 6th consecutive year of $1B growth in insurance premium. Bellusci's forecast for 2016 is a $17.9B gross premium, and 13.24B net of credits.

But Bellusci thinks 2016 will be the end of premium growth as lower rates trim the cash inflow. The earlier premium growth was driven by higher rates early on, and thereafter was economically (i.e. payroll) driven. It seems, according to Bellusci's interpretation of the data, that the industry is at end of a premium growth period.

Though California has 12% of the nation's total population, it represents 29% of countrywide premium. In 2009 California was 19% of the entire country. The premium growth in California, post recession, was much quicker than rest of the country. Part of this was rate increases, payroll expansion, and now the carriers are facing rate decreases.

Also, Bellusci noted, that even though many carriers have been consolidating (buying each other and/or merging subsidiary operations) the state still is the most competitive and diverse market in the country.

70% of the state is written by national carriers, 21% are California specific only, and 9% written by State Fund.

You folks already know what I think of this situation - in my mind, while a bit better than in the past with California specific carriers climbing out of the decimation to the market created by "open rating", I see this as still a very anti-competitive market.

Domination by big money national firms with broad portfolios seeking to take advantage of the work comp market to sell other lines - to me there is nothing healthy about work comp being a "loss leader" to other lines and such behavior negatively affects the quality of claims handling.

Despite "open rating" and the illusion of competition, California rates remain considerably higher than the rest of the nation (see my argument above).

Bellusci points to 3 principal factors negatively affecting California rates: frequency, severity and the cost of benefit delivery.

Injury reports went from 1 in 5 workers in 1962 to 1 in 25 in 2012 - 83% decline. That is a fantastic safety record that mirrors the rest of the nation and is consistent with what Berkeley research Frank Neuhauser's opinion that it is more dangerous living outside the work place than in it!

But, of course, the Los Angeles area pulls California out of the national average. From a statistical standpoint the anomaly is due to the high rates of permanent partial disability claims (which drives litigation, ergo expenses) and continuous trauma claims (which are largely absent in the rest of the nation).

Indemnity loss in 2015 was nearly a $30,000 per claim average. In 2005 that number was $19,000. If there is any good news for carriers (at the expense of the medical community) medical cost severity bucks the national trend; California medical costs have been deflationary since SB 863 while the rest of the nation has see inflation.

But it's not medical severity that really drives these costs in California - it is late reporting and more importantly late treatment authorization. The late tail in medical care (i.e. delays, denials, and overall bureaucratic wedge-points) creates a super heated medical cost driver, such that the average California indemnity claim medical cost is $42,000 - second highest in the nation, and unfortunately also by a long shot...

And to the chagrin of reformers, the unintended consequence of SB 863 has been an increase in benefit delivery friction costs by 24%, making California the most expensive in loss allocated expenses, by far.

So what's the take away?

I think Mark Walls, a panelist on a separate presentation at the meeting (Conundrum Part 3), put it best: "California is performing exactly as it was designed ... this is what we signed up for in California."

California Conundrum Part 1

There are at least three stories that were told at the Annual Workers' Compensation Insurance Rating Bureau meeting in San Francisco yesterday.

The one I will relay today is the one about education and jobs, and how the workers' compensation industry, in my mind, is going to have a tough time getting new blood to replace us gray/no hairs unless something drastic changes.

Sarah Bohn

Sarah Bohn  is an economy research fellow at the research center of Public Policy Institute of California. While her presentation was about the general economy of the state so that attendees could understand where the jobs are going to be and in what risk categories (and regions), here's the bottom line: there aren't going to be enough college educated young people to meet the demands of the job market.

In other words, there's going to be a shortage of qualified people available to handle all of the tasks in the work comp industry (and other jobs that require higher education) so work comp is going to have to compete for talent.

Bohn said that job growth in California is happening mostly in the service sectors, accounting for 50% of all job growth. The sectors that are growing fastest include accommodation (hospitality) and food, health care, professional and scientific, and administrative jobs. The mix is still pretty diverse, Bohn noted, and those areas are projected to continue their growth rates through 2022, though construction in certain geographic areas is going to explode.

Side note: construction is a mainstay of the California economy and supports a huge side economy in supplies, appliances, banking, etc.

About 50% of the fastest growing jobs require little education, said Bohn, but the wage polarization will accellerate against the higher education jobs; one needs look beyond just the growth numbers to the characterizations: Overall Bohn believes more jobs will require more education than current, continuing a trend from past years.

About 1/3 of all jobs in the state require a college degree, 1/3 high school or less, and the other third in between high school graduation with some college training.

But future economic demand is going to exceed the supply of skilled workers by 2030 in the high education high skill sectors. Bohn calls this a skills gap which will result in lower economic growth and increasing economic inequality between the haves (college educated) and have nots (no college degree).

California used to be the education capital of the world because of its marvelous public university program through the UC and state college system. The model was phenomenal 50 years ago, but needs an update, according to Bohn, if the state is going to meet demand.

Compared internationally, California still has one of the highest share of bachelor degrees overall for older adults, but not for the 25-34 group which ranks about average.

But the future is more dire.

41% of California high school grads don't go to college within 1 year after graduation, and overall not enough go to college at all. California's public education plays a huge role in whether someone goes to college, accounting for 46% of all admissions.

Bohn estimates that only 35% of adults will have college degrees in 2025 which will create a shortage relative to job demands of about 1.1 million worker...

The way I took this news is that the workers' compensation industry is going to have a tough time getting skilled/educated workers, and we'll be competing against (actually, already are) all of the other economic sectors.

So we, as in work comp, will need to work harder to educate, recruit and train - oh, and pay wages that will match tech, and other more rich job sectors.

There are some executives and companies that are thinking hard about this conundrum and they're talking actively about how the industry can support trade specific (in this case insurance and workers' compensation) training into college degrees to that young people come out of school already primed for a career of helping people.

These efforts are a great start. More will need to be done though. More financial assistance, more university participation, more marketing of the industry to young people.

In particular, we need to communicate a message that workers' compensation is a good career for good people who want to do good things for humanity.

I'm not talking about a polly-anna, fantasy - but there are stories we can tell. Some people don't have good experiences, granted. We as an industry should learn from those so we can deliver work comp better in the future.

But we should also do more to acknowledge what's right, tell those stories, and do a better job of managing the image of work comp and the people that make it happen.

Part of my small effort in that regards is Comp Laude. Yep, shameless promotion here, but timely.

Nominations are open, but will cease at the end of this month. The process is simple - just tell us who you are, who the nominee is, and a short description of why the nominee should be recognized.

You don't need to figure out any categories, use any rating scales, answer any questions.

If your nominee passes the first round of selections by our nominations committee, then you'll be asked to provide a more complete narrative, i.e. tell us the story.

Stories are what people want to hear. Statistics are great, but stories engage people and help with understanding.

We'll present those stories, and the award winners, November 4 and 5 at the Burbank Airport Marriott.

Workers' compensation is going to need educated people in the future and we'll be competing against the rest of the economy for them. Sure we need to step up educational efforts, but the first part of the equation is to elevate the image of the industry.

An Innovative State Fund

The California Department of Insurance lowered its advisory pure premium rate again this year, and many insurance companies writing workers' compensation in the state have followed along.

Side note for the uninitiated - the DoI's rate is not mandatory nor obligatory; insurance companies in California are free to charge a base rate but most tend to follow the advisory rate to remain competitive in the market.

The pure premium rate is not what a company actually charges either. The pure premium rate accounts only for anticipated losses for the year, and the costs of administering and settling claims. It does not account for administrative expenses or other overhead costs.

The rate is not to be confused with the actual premium charged an employer. The rate is just one factor. An employer's experience (i.e. how many claims are made over time) and the amount of payroll and job classifications account for how much an employer is actually billed.

The Workers' Compensation Insurance Rating Bureau, which gathers all of the carrier data in California for analysis and advisement on rates (among other duties) says that frequency (i.e. the number of claims) keeps going down, severity (i.e. how much is paid on each claim) keeps going down, and safety keeps improving, all of which dictate less expensive insurance for employers.

For employers, this is all good news, so long as the insurance obligations to take care of their workers injured on the job are performed (I know, there are going to be comments that the insurers aren't keeping their promises - but that's not what this post is about, so don't tap that keyboard just yet...).

The State Compensation Insurance Fund has really wicked up the pace, however, by announcing a monumental 9.5% drop in its pure premium rate.

Compare that to the average rate drop filed in California, which is about 3% for the year (give or take a few basis points).

Perhaps even more important though is the State Fund has asked the DoI to approve a new tiered rating plan, increasing the tiers from four to seven.

The purpose, says the State Fund, is to smooth out pricing fluctuations from year to year for its policyholders.

This is huge.

The State Fund, though it has been losing market share (albeit, not unintentionally), is still by far the largest workers' compensation carrier in California (and one of the largest in the nation) because it's core market is by far the biggest market: small business.

Small business is no different than small households - many generally live, essentially, paycheck to paycheck, month to month, season to season. In other words, cash flow is the biggest challenge for small business.

What drives small business owners nuts is not being able to adequately plan for cash outflow. Surges in expenses, particularly expenses that tend to be perceived as fixed, like insurance, cause panic and anxiety. The year over year double digit workers' compensation insurance inflation in the early 2000s is what created the havoc that resulted in SB 899 in 2004; it wasn't the fact of inflation, it was that inflation was so radical (40+% year over year)!

And the State Fund plans to revise how it assigns employers to tiers by taking into account the wages that an employer pays in comparison to average wages paid by similar employers in the same industry. An employer with a higher ratio between the average annual wages associated with the policy and the average annual wage for the industry would be assigned to a better tier.

In addition to this new rate plan, the State Fund is also planning a one year transition because some employers will in fact see rate increases - the transition plan is designed to ease those employers into the new tier, which officials believe will be more fair to more employers and will flatten the payment obligations.

I think we're seeing a new State Fund, one that is much more customer focused and innovative. Does the State Fund have issues and problems? Sure, we can find fault in nearly any business, particularly insurance companies. But State Fund has been stepping up its game.

It's not easy to stand out in work comp insurance. State Fund is showing the others how to do so.

Good job folks.

Are The Calderons Enough?

And another one goes down.

Former California state Sen. Ronald S. Calderon agreed Monday to plead guilty to mail fraud, after signing a plea agreement over the weekend in which he admitted to arranging $30,000 in payments to his son from Michael D. Drobot in exchange for legislation that would have allowed Drobot to make “substantial amounts of money” by performing spinal surgeries on worker's compensation applicants (using in many cases, as we now know, counterfeit hardware as well).

Calderon admitted that he pressured Drobot to hire his son as a paid summer intern in exchange for pushing legislation in Sacramento that would have benefited the man.

Under the terms of the deal, prosecutors agreed to request that U.S. District Judge Christina Snyder sentence Calderon to no more than 70 months behind bars — the low end of what sentencing guidelines suggest.

Calderon’s brother, former state Assemblyman Tom Calderon, pleaded guilty to a single count of money laundering on June 6. He admitted in the plea bargain that he and his brother hid bribe money through laundering to his company. Prosecutors have agreed to seek a prison sentence of no more than 12 months for Tom Calderon.

Regardless of what the Calderon brothers and their stories say about California politics, the tie to workers' compensation is even more unfortunate. Big money fraud is exposed once again in California comp, and we can't seem to get over it.

In 1992 KCBS-TV reporter Harvey Levin went undercover to reveal flagrant fraud in California's workers' compensation system, uncovering blatant, organized crime. Shortly thereafter some people went to jail and new rules were put in place outlawing patient solicitation and other techniques of cheating the system, employers and workers - frankly to little avail...

The cheating, on a large scale, continued, albeit in a more clandestine, but no less sinister manner, as evidenced by Drobot, Calderons, Fish, etc. etc.

It was some six or seven years ago when I was called to a meeting in Glendale, CA by a prospective purchaser of WorkCompCentral. The chief executive of the medical imaging firm that had proposed buying my company pulled me aside and said, "Look David, you know and I know that workers' compensation is dirty business...".

I was shocked and offended when I heard that and our business meeting was nearly instantly terminated.

Yes, I know that a criminal element lurks in the shadows of workers' compensation.

And I also know that the people who toil in this system are disgusted with what seems to be tolerance for the cheating of employers and their workers out of the protections and benefits of work comp.

But for too many, turning a blind eye means keeping food on the table for the family.

Or, hate to say it, just staying alive...

That workers' compensation fraud goes as deep as it does into government demonstrates that work comp is not just a political football, it is the house stacking the cards.

There are three stakeholders in work comp. Employers pay for the system. Workers benefit from the system. Government makes and enforces the rules. Anytime any one of those stakeholders abuse their positions is shameful.

But when government is abusive confidence in the system is shaken to the core.

I think most of us want workers' compensation to be seen in the Good Light. I want workers' compensation professionals, dedicated to serving and taking care of People, to be viewed as the heroes that they are. I want respect for the institution...

That can't be accomplished when government is part of the problem.

While the Calderon brothers are finally going to serve some time (albeit, too little in my opinion), my fear is that they are simply a symptom of a greater evil that lurks in the shadows of comp.

Workers' compensation isn't perfect, but the people committed to the cause do care, do good work, and want to help people.

Corruption is intolerable. It is, unfortunately as indicated above, ongoing regardless of criminal indictments and guilty pleas.

Those who don't wish to play by the rules, who seek an unfair advantage, shield themselves and their operations with powerful, influential people who are able to deflect allegations and investigations.

It's unfortunate and the public perception of workers' compensation gets inexorably tarnished.

Which means you and I have to work even harder to make workers' compensation the venerable institution it is.

It's not about protecting special interests. It's about protecting the general interest.

Don't get disheartened work comp professional. Be emboldened. Blow the whistle. Make a case. Someone, eventually, will listen and take action.

This Could Be Huge

My blog post on fraud and audits on June 7 attracted the attention of Christine Baker, Director of the Department of Industrial Relations, State of California.

She took issue with my statement that the Brown Administration was actively inhibiting audits of anti-fraud activity.

Baker explained that while an audit is a great process for keeping government in check, she has been through this process numerous times in the past and the issue is that the auditors don't understand work comp, don't understand the nature of work comp fraud, they come in and ask a bunch of questions then make budget recommendations and suggest which agencies could or should coordinate more...

In the meantime the auditors do not get to the root cause of the issue and create a huge distraction away from actually combatting the crime.

I get it. Any of us who have been in positions of accounting for where the money goes have been through audits, and for the most part, unless one is truly trying to hide something, audits are a huge expenditure and a significant distraction that take up a lot of resources for little return other than to assuage the bill payer...

In my blog I had suggested that keeping the consumer/injured worker informed via some explanation of benefits or other reporting mechanism would go a long way, not only in deterring fraud, but also towards increasing consumer engagement in their own treatment and case activity.

Baker isn't interested in another form, and another piece of paper to accompany the 30 million medical bills that get through the system every year. She is interested in a more robust solution.

What hasn't been clear to the workers' compensation public is that the administration has been using EAMS data (more specifically lien filings) and marrying it up with Independent Medical Review to see which providers are operating in the shade.

Some of those providers have already been indicted, and surprisingly continue to pursue lien collections (perhaps to fund their legal defenses?); others are in the indictment cross hairs as the administration works with the FBI and other law enforcement to build cases.

This activity is the start of something bigger, more comprehensive, and hopefully will result in not just capturing criminals but getting consumers more engaged in their own claims.

The future will bring us, Baker promises, a portal for anyone on any given case to log in and see everything that is going on, and in particular medical billing. This is the administration's answer to giving consumers/injured workers an EoB for every medical bill - instead of individual pieces of paper, the administration proposes that folks will have essentially real time access to the complete status of their cases (and I'm assuming even those that are not litigated) for more engagement, greater understanding, increased transparency.

This is a huge task.

Making all of this disparate information and complex workers' compensation metrics accessible without violating privacy, and also making it understandable to the consumer is going to be very, very difficult.

I hope that those who are planning this project engage some of the best user interface designers they can hire because while information is great, if it can not be understood by the consumer of that information then it is of no utility.

If the administration can pull this off, however, it will be a model that all other jurisdictions can, and should, adopt.

Distrust Government

There are three stakeholders in workers' compensation: employers who pay for it; injured workers who benefit from it; and government which sets the rules and enforces them.

Or at least is supposed to.

We prosecute employers who commit fraud. Ditto for employees.

But at least the executive branch of the California state government seems to feel it is beyond reproach when it comes to opening its books for audit.

Assemblyman Tom Daly, D-Anaheim, had made a request for the state auditor to take a look at how the Department of Insurance and Division of Workers' Compensation work with prosecutors, insurers and employers to fight fraud.

But the governor's office didn't like the oversight request.

Sure you trust this guy?

According to sources who discussed the matter with WorkCompCentral on condition of anonymity, Gov Jerry Brown quashed Daly's efforts with considerable political pressure on Democratic members of the audit committee.

Daly’s May 2 audit request says lawmakers created tools to prevent or reduce unnecessary treatments for injured workers, but despite those tools, “there is ample evidence that the system remains rife with fraud and waste in connection with providing care, and related services to injured workers.”

Daly sought an explanation into how and to what extent state agencies, county prosecutors, self-insured employers and insurance companies worked together to fight workers’ compensation fraud.

Daly wanted to know how these entities coordinate anti-fraud efforts and the metrics used to measure progress in reducing fraud. He also wanted the auditor to investigate strategies used in other health care systems to prevent and prosecute fraud, as well as identify practices that may not be fraudulent, but that “result in the wasteful or abusive provision of services to injured workers.”

Staff members for the legislators on the audit committee who responded to reporter inquiries on Thursday said there was some support for the measure by both Democrats and Republicans.

But Brown's office, without explanation, did not want any review of the fraud-fighting apparatus, which is largely funded through assessments on employers and overseen by the Fraud Assessment Commission, the Department of Insurance and the DWC.

So Daly withdrew his request Wednesday depriving the Joint Legislative Audit Committee the opportunity to hear testimony or vote on whether to approve the audit.

Daly's office did not respond to reporter's inquiries either.

The industry talks about transparency all of the time and the chorus has been getting louder over the years. For example, it seemed that every presentation at the Self Insurance Institute of America's Workers' Compensation Executive Forum I just attended talked about the need for more transparency.

Employers want transparency because they pay for the system. 

Employees need transparency to know that they're getting what they should.

But the California government doesn't want transparency because it makes the rules, including the rules about enforcing its own rules...

Workers' compensation seems to be a system built on mistrust - and Brown's office wants to keep it that way.

**********POSTSCRIPT**********

On March 31, 2016, the news publication Reveal of The Center for Investigative Reporting published, "Profiteering masquerades as medical care for injured California workers." (Reveal has a whole series on work comp fraud and it is excellent and should be required reading for everyone in the industry, especially in California).

The most telling quote in that piece, which is completely validates by the notion that our government either has something to hide, or an embarrassment to protect, is by accused fraudster, owner of Landmark Medical Management, Kareem Ahmed who was caught on tape, according to the article, stating, "Nobody gives a fuck.”

Indeed, the article points out that "while health care programs such as Medicare have developed an arsenal of weapons to ward off fraud, California state regulators have few tools at their disposal. For one thing, the state shares oversight with hundreds of insurers and self-insured employers, leaving no one clearly in charge."

Perhaps it is THIS embarrassment that Brown intends to hide.

Partial remedy: mandate that ALL medical EOBs be shared with the patient, then reward patients for reporting activity that ends up either fraudulent or clearly erroneous. That is one simple tool that may cost carriers a little more, but could lighten the fraud assessment surcharge on employers considerably.

Hiding the ball by avoiding audits, however, is just plain wrong and the government needs to be called out on this bullshit.

The administration says it wants to deliver "evidence-based, appropriate and quickly delivered" medical care, but does nothing to avoid the opposite.

If mistrust is to be reversed, then we should not tolerate hypocrisy from our government officials.

It's Getting Transparent

Transparency is an issue in workers' compensation, probably more so than other industries, because the complex nature involving the intersection of medical, indemnity and liability creates too many potential shadows.

Opaqueness breeds mistrust.

This is particularly true when a state legislature creates an anonymous sub-system, like California's Independent Medical Review process.

The thought behind anonymity in IMR was to alleviate excess litigation by reducing the probability of medical disputes - if a party does not know who is making the IMR decision then there is very little likelihood that the party can subpoena that individual for interrogation.

But the statute doesn't say that the entire process has to be anonymous - just the name or identity of the person making the IMR decision.

So the State of California's Division of Workers' Compensation has rolled out a huge new feature in the IMR website that hosts decisions that allows users to search independent medical review decisions by the specialty of the reviewer and whether the underlying utilization review decision was upheld, overturned or partially overturned.

DWC’s new web page allows users to sift through IMR decisions by treatment request categories such as pharmaceuticals, surgery and diagnostic testing. For some categories including pharmaceuticals, it includes sub-categories including benzodiazepines, opioids and topical compounds.

The page also allows sorting individual treatment decisions by outcome.

This is huge.

While agency officials have not yet elaborated on DWC's expectations for this new tool, I for one think it is a tremendous vote of confidence in the process, and should lead to much better oversight and administration of the IMR process, in addition to providing parties with much needed confidence that the system is, or isn't as the case may be, working properly.

California Applicant Attorneys Association president, Bert Arnold, told WorkCompCentral that he was concerned about the ratio of cases being decided by different specialties which are not indicative of the proportion of medical specialities being submitted for review.

That's a valid critique, and one that should be noted by officials as they seek to improve the system.

In the past such criticism would not be afforded simply because nobody knew, other than Maximus, who was doing what with the disputes.

At least now we have some idea as to qualifications for opinions.

It's not perfect, but it is a giant step in the right direction.

Kudos to DWC for the foresight in providing this information, and its confidence that providing more transparency is good for the system. Perhaps in small chunks some trust can be restored.

Just Bad Law

There's only so much abuse that people will tolerate. Then, after too many people take too much advantage of a situation, hammers are brought out to not just quell the abuse, but to kill it.

Thirteen years ago the chiropractic community had too many unreasonable people taking advantage of workers' compensation liberality. That abuse had been going on for twenty years. It frankly wasn't uncommon to see workers' comp patients getting chiropractic adjustment, consultation, naturopathy and all sorts of other "treatments" for years on end on a weekly basis - treatment protocol that went way beyond any measure of reasonableness.

Not all chiropractors were engaging in such nonsense, of course. Likely it was just a minority that were out of control. But because neither the professional association that governed chiropractic care, nor the professionals themselves, could seem to supervise that group of carrion, an insurance-charged legislature came along and implemented an artificial limitation on chiropractic and physical therapy care.

In 2003, then California Gov. Gray Davis signed into law SB 228 limiting workers to 24 chiropractic and physical therapy visits per injury unless a carrier authorized additional treatment.

Other states also reacted - Texas and Florida to name a couple. The chiropractic professional community simply could not control members whose primary mission was easy money...

I heard tale after tale of chiropractors shutting their doors after these reforms. Some just scaled down their businesses. Others moved on to other pastures.

In the meantime the frequency for back surgeries escalated and the subsequent opiate crisis is well documented.

The lesson - abuse a system too much for too long, and then watch the door slam shut. Worse, the reputation, credibility and reliability of members who were not part of the billing feast were also cast into aspersion. And even worse yet, the ultimate consumer of workers' compensation goods and services, the injured worker, had even fewer options for care and treatment.

Cris Forsyth, government affairs director for the California Chiropractic Association, told WorkCompCentral that chiropractors have long been pariahs in California’s workers’ compensation industry - and there's good historical reason: this is a group of professionals that were particularly and unreasonably abusive, medical guidelines be damned.

Chiropractors can't be completely blamed for SB 228. The trial level courts shared the responsibility. Judges routinely were granting bills and lien claims of chiropractors over the objections of payers, despite treatment impotence and care that went against medical science.

Frankly, California's workers' compensation judges condoned bad behavior.

So we get artificial limitations that we should not otherwise have.

Now the chiropractors want those limitations lifted and have proposed legislation to do so, but in the wrong way.

Assembly Bill 2407, by Assemblyman Rocky Chavez, R-Oceanside, would amend the Labor Code to require the physician treating a worker with a back injury to perform an assessment of the “level of risk for chronic back pain” and determine whether that worker meets the criteria for a surgical consultation. Surgery could be recommended, but only in a limited number of conditions and if there is sufficient evidence to indicate surgery is more effective than other treatment options.

Alternative “covered treatments” that could be deemed appropriate after the assessment under AB 2407 include:

• Acupuncture.
• Chiropractic manipulation.
• Cognitive behavioral therapy.
• Medications, including opiates for short-term prescriptions only.
• Office visits.
• Osteopathic manipulation.
• Physical therapy.
• Occupational therapy.

That's all well and good, but the proposed bill goes beyond amending Labor Code section 4600 in the above particulars by including a slight, though despicable, alteration to the "reasonable" standard of medical care and employer liability.

The existing standard is, "[i]n the case of his or her neglect or refusal reasonably to" provide medical care, then "the employer is liable for the reasonable expense incurred by or on behalf of the employee in providing treatment."

The proposed standard would be, "If the employer neglects or reasonably refuses to provide that treatment...".

Astute legal interpreters should pick up on that instantly: "reasonably refuses...".

So, even if the payer is in the right, by following the Medical Treatment Utilization Schedule or any other treatment guideline, scientific evidence, or other protocol that refutes the services supplied, the payer is STILL liable, because it "reasonably refuses" to pay for the services or goods.

Nice try guys. I'm certain that most don't object to alternative modes of treatment that will provide the best path for return to health of the worker who has a back injury.

But inputting a back door for required payment of services or goods that have no scientific or medical validity is dirty pool.

Listen, we don't really need any artificial limitation on chiropractic, or any other care now. We have guidelines, utilization review and independent medical review. AB 2407 just needs to remove the artificial limitations imposed back in 2003.

As it stands, I'm calling BS on AB 2407. This is just bad law.

Twelve years of experience on the receiving end of denigration, and they still don't learn...

Open Rating Rant

I was talking with Michael Standing, CEO and president of AIM Mutual Insurance Company out of Massachusetts - preparing a guest spot for the Seismic Shifts presentations last year.

("Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers' Comp," was a special WorkCompCentral report prepared by Peter Rousmaniere last year that investigates commercial opportunities in a shrinking workers' comp industry.)

Standing and I were making some small talk about the market and he floored me when he told me that Massachusetts, a state of about 6.75 million people, and only $1 billion in workers' compensation premium, had 290 workers' compensation insurance companies competing for business.

California, by contrast, has almost 39 million people, a gross written premium of nearly $16.5 billion, but only 218 carriers, many of them sub-carriers or affiliates of larger companies, so the real number of carriers is even smaller.

What's wrong with this picture?

In 1993 "open rating" became the new business model in California. Before the open rating law, all workers' compensation insurance had to meet a minimum pricing standard. In other words, there was a floor on rates - insurance companies could not quote or charge less than what the Department of Insurance said could be charged.

I've ranted before about this.

Before open rating, there were well over 350 insurance companies. They competed on quality of service, the experience rating modification factor (aka "ex mod") being the determining distinction between carriers - the better serviced claims, the lower the ex mod, the less expensive the insurance.

This promoted safety, prompt claims handling, and frankly BETTER claims handling.

Since 1993, however, the standard has deteriorated to least expensive claims handling (which is ironic given the cost of claims has increased exponentially since then, in particular the cost containment component of claims handling).

Open rating was supposed to increase competition.

The opposite has occurred - it has, to the great detriment of the policy purchasing employer population completely stifled competition.

And worse, has focused the industry incorrectly on cost containment rather than quality performance.

At least that's MY opinion.

Ought to be yours...

Too Good for Truth

So much of what we talk about in work comp is related to claims, but we forget that before claims there has to be a policy covering those claims, and those policies are strictly regulated because workers' compensation insurance is a captive market.

Since coverage is compulsory and the business of insurance is complex, California regulations require that anything remotely close to an insurance policy be first filed with the Workers' Compensation Insurance Rating Bureau and the Department of Insurance for review prior to implementation and sale.

Lately Applied Underwriters through its EquityComp program has drawn fire for violating these regulations and is the subject of regulatory review as well as a number of civil lawsuits, including one class action lawsuit.

The allegations are complex, but when we strip away the technical jargon, what Applied is accused of is making promises it didn't, or wouldn't fulfill; i.e .misrepresentation. It might have gotten away with it too except that the carrier came back to the complaining employers to demand more money than they had already paid.

If there's one thing that pisses people off is not delivering what was promised, then demanding even more money for that failed promise.

The employers suing Applied say they were quoted minimum and maximum program costs that didn’t resemble what was actually charged. They claim that they entered into the EquityComp program, then were required to also sign off on reinsurance participation agreements that included provisions that allowed Applied to continue assessments after policies expired - years after policy expiration, like a revolving line of credit with no end.

In other words, the employers ended up paying far more for their work comp coverage than they thought they would be responsible for.

Shasta Linen is one of the complainants. In its lawsuit it says quoted annual costs were to be between $107,541 to $322,623. From 2010 to 2012, the company paid $934,366 - obviously on the high side of the quote. But when the policy expired in December 2012, Applied sent Shasta a bill for $77,592 and another bill in January 2013 for $166,619.

Pet Food Express signed up for EquityComp in 2009. According to its class action lawsuit, the company had actual losses of $724,231 over the three-year coverage period, which meant its premium should have been about $1.2 million according to a program summary it relied on.

Instead, the company said it has paid more than $1.6 million in premiums.

Pet Food Express also alleges other Insurance Code violations such as out of territory arbitration and enforcement of policy disputes; neither the original Request to Bind Coverage and Services nor the reinsurance participation agreement Pet Food Express claims was foisted upon it after coverage started included a notice that dispute-resolution procedures are negotiable, as required by Insurance Code Section 11658.5.

Pet Food Express also argues the reinsurance participation agreement allocates risks in an “unreasonable and unexpected manner,” rendering the agreement unconscionable and void under California Civil Code Section 1670.5. That section allows a court to refuse to enforce an unconscionable contract.

Mike Rose’s Auto Body in Concord, CA on April 11 filed a complaint with the U.S. District Court for Northern California accusing Applied Underwriters Captive Risk Assurance Co. Inc. of fraud, breach of contract and unfair business practices.

According to the complaint, the body shop in September 2009 was told it would pay between $308,796 and $1.15 million over the three-year term of coverage through EquityComp. When the three-year coverage period ended in September 2012, the company says it paid more than $800,000 for $269,075 in claims.

Mike Rose’s Auto Body said it should have about $70,000 remaining in its account, but Applied has refused to return that money.

You'd think that would give the executives at the body shop pause ... Nope, the company re-enrolled in EquityComp in September 2012 based on a quote projecting costs of $403,553 to $1.52 million.

Applied sent the body shop a statement on Oct. 7, 2015, showing the company paid a total of $1.53 million during the latest three-year coverage period. According to the complaint, the statement said the body shop owed $1.44 million, so it had overpaid by about $91,000.

However, after applying provisions contained in the reinsurance participation agreement, Applied determined Mike Rose’s owed another $70,000 in premiums, and on Nov. 9 Applied sent a new statement with $290,452 in “new charges” bringing the balance to $361,000.

Whether Applied engaged in intentional or negligent misrepresentation, the heart of the matter is that expectations were established, and then violated. If the complaints are to be taken at face value, employers thought they were buying one thing, and then were sold another.

The cycle of money in workers' compensation should be straight forward. Employer pays money to carrier, which then uses that money for various expenses and then sets some aside in case a work injury occurs; if the carrier is astute the money sitting on the side lines will generate investment returns sufficient for a profit, and if the carrier's investment savvy is lacking then it loses money.

At the end of the day, the employer should have a reasonable expectation of what its costs will be, and the injured worker should have a reasonable expectation of what his/her benefits will be.

Failing one or the other creates mistrust, disputes, lawsuits, costs and expenses. Failing both causes a fundamental breakdown of the system.

The reason we have laws mandating filing and review of insurance documents is because even the most sophisticated purchaser of insurance products can get duped.

If it sounds too good to be true, it is.

Applied would not comment for this morning's WorkCompCentral story on the cases. The company is a division of Berkshire Hathaway.

Here's a blog from one of Applied's very frustrated customers: (http://www.coyoteblog.com/coyote_blog/2015/04/beware-applied-underwriters-workers-compensation-insurance.html) - he explains how he got into this mess and why he's upset - it's pretty simple. He felt backed into a corner and signed documents he didn't understand...