The Grill Box

A few years ago my wife came home from the local building materials charity store with a large wooden box. It has a hinged lid, and caster wheels. We painted it, lubed it and put all of our grill accessories in it.

The grill box is very functional. It holds the charcoal, lighter fluid, incendiary device, fire extinguisher and a couple of other nic-nacs necessary for a complete grill experience. Utensils and other cooking paraphernalia (such as the requisite glass of wine) can be placed conveniently atop the lid while cooking.

The box stays outside, so it gets weathered and requires periodic maintenance. It had been a while since any had been done though.

Cleaning and lubricating the grill box was one of those projects that just kept moving down the priority list.

It's a very easy job. Tighten up the screws and oil the lid hinges, flip the box over and lubricate the caster wheels.

That's it - an easy 3, maybe 4, minute job.

But for whatever reason, every weekend, I'd have that nagging feeling that I forgot to do something. I'd ponder. I'd ask my wife. We couldn't remember.

Maybe the job was so trivial, perhaps it was so easy, or just too small in relation to all the other, bigger, household projects that its insignificance left no impression on the memory.

The California Supplemental Job Displacement Benefit is sort of like my grill box - apparently it's one of those things that is easy to forget, but just takes a little maintenance.

The $120 million annual fund that was created at the last minute by the legislature to get SB 863 passed was based on a Rand Corp study that estimated there were about 24,000 people who would qualify and benefit from this supplemental fixed payment of $5,000.

Injured workers are eligible for the voucher if the employer does not offer re-employment within 60 days of the treating physician or evaluator declaring the applicant to be permanent and stationary, and issuing a report outlining job restrictions.

The benefit replaced a voucher program that had graduated levels of benefits based on disability but was too complex to administer.

The Division of Industrial Relations sent 3,955 workers $5,000 checks from the fund between April 13, 2015, and the middle of February. The total, $19,775,000, is only 16.5% of the gross available.

Consequently, if Rand's estimates are correct, there are 20,005 injured workers who received a voucher before April 13, 2015, but will not be eligible to apply for payments after Wednesday because of the time limit.

Either the Rand estimate was too high, or the availability of the supplemental payment isn't well advertised, or....?

“While 8 CCR 17303 required claims administrators to provide notice of eligibility via a cover sheet accompanying all vouchers issued until the voucher form was amended by DWC, the department has been informed that at least some vouchers issued prior to Dec. 1, 2015, were not accompanied by the required notice,” the DIR said in a statement.

Rules that went into effect when the program launched in April 2015 require an injured worker to apply for payments from the fund within one year after receiving the Supplemental Job Displacement Benefit voucher, or one year from the effective date of the regulations. 

So the Division of Workers' Compensation is contemplating extending the deadline to one year from the date of receiving the updated voucher form, or one year from the effective date of the amended regulations for those who received vouchers before Dec. 1, to apply.

The state has a very nice, easy explanation of the benefit in Chapter 8 of its guidebook for injured workers. There are other notices that are to be issued that explain the benefit's availability.

Whether these publications are absorbed by the recipients is another matter of course.

I think what's really going on is that the supplemental benefit is just another layer of complexity in an already overly complex system. Another detail to attend to when so much is already going on ...

Truth be told though, the legislature should just take that money and revise the permanent disability indemnity benefit instead. That's a matter for another day.

This weekend I tightened up the hinges and put oil on them as well as the wheels. It's in tip top operational shape now and I used it to grill up a tasty rib eye steak for dinner last night!

The DWC might do some maintenance to the supplemental benefit program. It has scheduled a hearing on extending the deadline to apply for the benefit is at 10 a.m. April 15 at the Elihu Harris state office building, 1515 Clay St., in Oakland.

I don't think they're serving steak though.

PD Inequity

Yesterday I opined that the new minimum wage rates in California and New York would increase the disparity in income levels for permanently injured workers - i.e. the gulf between pre-injury earnings and post-injury indemnity would be even more pronounced than it is now leading to even more people on the edge of poverty.

A Rand Corp. report released Friday makes the point less dramatically because it does not deal with the new minimum wage law in California, but compares post-injury earnings over a period of time and as affected by the two major reforms since its first 2003 study: SB 899 and SB 863.

On average, a worker with a permanent disability will have a 28% reduction in earnings in the second year following an injury, concludes the report, "Benefits and Earnings Losses for Permanently Disabled Workers in California: Trends Through the Great Recession and Impacts of Recent Reforms."

Admittedly my math is rough and probably flawed, but if PD while the minimum wage is $10 an hour replaces only 72% of pre-injury earnings, then in 2022, when the full minimum wage of $15 an hour is the law, PD will replace only 36% of pre-injury earnings - and that's a chasm that is going to be political fire.

Rand researchers also point out that the reduction in earnings hits low wage earners more radically than those on the higher end of the scale. Changes implemented in 2012 by SB 863 to how permanent disability indemnity was calculated skews increases more acutely to impairments that had lower Future Earnings Capacity modifiers in the schedule prior to that reform because SB 863 normalized that modifier in the rating string to a standard 1.4.

Thus, the two lowest-ranked groups, impairments of the hand or finger and impairments of the knee, saw the largest increase in wage-replacement rates under SB 863.

Rand found that PD benefits under SB 899 replaced less than half of the wages lost by workers with hand or finger injuries, and about 30% of wages lost by workers with knee injuries. Post SB 863, those claims get the full 1.4 FEC modifier so benefits for hand or finger claims replace about 90% of lost wages, while benefits for knee conditions replace nearly 60% of lost wages.

But this is not an apples to apples comparison because other changes in the 2012 reform also affect PD.

Rand talks about "horizontal equity" - the notion that similarly situated workers should be treated similarly.

“Our analysis strongly rejects the hypothesis that the FEC factors as implemented under SB 899 led to horizontal equity across different types of impairments," Rand notes, "and we conclude that SB 863 does not systematically enhance or degrade the horizontal equity of the rating and benefit system.”

In other words, the FEC modifier didn't change things much, so standardizing it at 1.4 simplified calculating PD, which should have resulted in less litigation over the issue since prior to SB 863 it was found that the FEC modifier was a significant source of dispute.

That was a flawed assumption; litigation rates didn't change much...

But perhaps most alarming to me is that California's system of determining PD indemnity is probably one of the most horizontally equitable out of all the states - great pains were taken in the political and regulatory processes to make the system as fair across injuries and occupations as possible. Most states don't account for all those factors, if any at all.

Reading between the lines, what the research is really saying is that the base rate, the dollar number used for the weekly indemnity rate, will need to be increased, and this will become more acute and evident as the minimum wage increases.

If all else remains equal, then the maximum PD rate, now $280 per week for the most severe injuries, will need to be almost $500 per week just to remain in parity with 2016 wage replacement levels. And if Rand's research is taken at face value, that level is already inadequate to replace lost earnings.

Everything is lining up just nicely for the normal reform cycle of about 7 years...

Attempting Fairness

One of the biggest challenges in engineering a workers' compensation system is addressing fairness.

Not only must the balance between how much an employer pays to ensure its workers have injury/illness protection to address, but also disparity between beneficiaries themselves - in general higher wage earners are less impacted by the disruption of an injury or illness than lower wage earners; those earning more have a greater ability to compensate.

A lot of states address this later fairness issues with some sort of progressive benefit system - the more you earn the greater your weekly benefit amount, up to a cap at which point it's assumed that one earns enough that there should be some savings or other financial backup to address any loss of earnings.

Even though a system design may address benefit fairness, execution may be lacking - a point made last week when it was revealed that California's $120 million supplemental return to work fund had hardly paid out any money relative to its forecasted need.

Research think tank Rand Corp. released its Commission on Health Safety and Workers' Compensation contracted report on benefit fairness and adequacy post SB 863 and found that disparity among worker situations conflated the impact of benefit imbalance.

From 2005 to 2012, permanent disability benefits on average replaced 58.8% of workers' earning losses as a result of injuries, according to the report. But if measured under SB 863's benefit structure, indemnity benefits would have replaced 76.8% of lost earnings.

Add the $120 million fund to the mix and the lost earning replacement for workers injured between 2005 and 2012 would have been 80.2% under SB 863, according to the report.

The Great Recession had a disproportionate impact on wage replacement. During 2008 and 2009 permanent disability benefits replaced only 57.1% of lost earnings. Immediately following the post-recession period, permanent disability benefits replaced a little more than half of what workers lost as a result of an on-the-job injury, or 52.4%.

Had those benefits been distributed under SB 863 permanent disability benefits during the recession would have offset 77.6% of lost earnings, and 69.8% of lost earnings in the post-recession period.

What does all this mean?

"First, both the increased maximum wage and the changes to ratings translate into sizable increases in wage-replacement rates, while the impact of the return-to-work benefit on overall wage replacement rates is more modest," the report says. "Second, none of the policies enacted under SB 863 would have stabilized wage-replacement rates over the great recession. Although we estimate that return-to-work benefit payments would have increased sharply in response to the trends in employment and earning losses over the great recession, the relatively small dollar value of the benefit ($5,000) means that even sizable increases in the probability of return-to-work benefit payments lead to fairly small impacts on overall benefit adequacy."

The Rand authors find that the impairment rating formula adopted under California's earlier reform, SB 899, established equity across injury types; SB 863's dispensation of the Future Earnings Capacity modifier furthered that equitable outcome.

But one of the most important aspects of SB 863 for low wage earners is the supplemental return to work payment of $5,000.

"[T]he return-to-work benefit has the largest impact on wage-replacement rates for the lowest-wage workers," the report says. "Since the other provisions of SB 863 lead to larger benefit increases for middle-income and high-income workers, the return-to-work benefit has an important role to play in preserving the progressivity of PPD benefits."

WorkCompCentral reported on Friday that since the Return to Work Supplement Program went live in April 2015, it has issued just 3,955 checks for $5,000, paying out a total of $19.775 million 10 months into the program.

California has one of the most complex systems for determining and delivering indemnity benefits - the purpose of that design was to increase fairness across worker economic levels.

Based on Rand's research, the California design can achieve greater equity than other programs without that complexity.

But execution is another matter - with complexity of design comes complication in execution: disputes arise in determining impairment, allocating impairment across injury liabilities, applying for a supplemental payment, etc.

Fundamentally, workers' compensation can not be everything to all people.

For those living paycheck to paycheck, though, it IS everything. The real bottom line (see the Rand chart): get hurt at work and your post injury earnings go down...

The Rand report is here.

Clear The Ears

Friday was, I think, the first business day I did not post in this blog other than when I was on vacation in Italy last May.

Even when I was ill in the past I managed enough energy to get some of my thoughts out.

This past Friday was different. I just couldn't muster the energy to do so. I took a sick day.

That's very foreign to me - sick day. I don't like being sick, and I don't like admitting that I'm sick. So reality bites hard when it comes knocking on my door.

I was supposed to be in Las Vegas for a speech. That didn't happen.

Instead I remained prone most of the day, drenching my shirt and sheets in perspiration, sucking up as much water as my belly could manage, hacking, coughing and discharging mucus with loud, honking noises.

Yech.

Illness is that sort of vague, I felt like doodie, thing that prevents normal operation.

Kind of like a high performance automobile engine trying to struggle under a high load situation on ethanol infused 87 octane fuel. Knock, knock - nobody's home....

Saturday arrived and most of the illness departed, but like an engine that's toiled through bad fuel, there was some sludge sticking to the valves. Timing was good and ignition sharp, but the exhaust had some trouble venting.

Which is why my ears didn't clear descending Forty One Mike into Oceanside that morning.

One of the weirdest, and most frustrating, things to experience is hearing through an aviation communications system with blocked sinus passages. It's sort of like talking through the tin cup and string network that we made when kids.

It didn't hurt, it was just weird.

On the ground the pressures eventually equalized and I was able to clear my ears and hear normally (which with tinnitus, means poorly anyhow).

The California Commission on Health and Safety and Workers’ Compensation hearing (pun intended) on utilization review and independent medical review on Friday was like blocked sinus cavities while descending in an airplane.

Researcher Barbara Wynn of the Rand Center delivered the report on UR. Basically she said what everybody has been saying but doing nothing about - it's over-utilized (pun intended, again).

Rand came up with a couple of suggestions: accreditation, an exemption of certain procedures, review standardization - basically more bureaucracy to remedy the existing bureaucratic morass.

In addition to the redundant advice on UR, CHSWC learned that the Division of Workers’ Compensation received 253,771 applications for IMR in 2015, an 11.2% increase from the previous year. Counting only eligible applications (where medical records were provided timely), the division received 165,619 last year, a 13.6% increase.

In other words, the hamster's wheel has gotten bigger.

There's more UR so there's more IMR. That seems pretty basic. While the California Workers' Compensation Institute has mind-numbingly detailed numbers on IMR, the bottom line is that most UR that gets to IMR is affirmed.

The story I'm hearing through all of these statistics, reports and commissions is that there's a lot of people that aren't following the operating handbook.

After all, workers' compensation in California (and in most states) involves guidebook medicine - the rules are written, the guides are in place, the recipes have been published. In California we call them the Medical Treatment Utilization Schedule. Other states use other guides or combination of guides, and they go by different acronyms like ACOEM or ODG...

If medicine is so standardized, then how can so many treatment requests end up in to the black hole of the UR/IMR space game?

Seems to me it's a sinus cavity infection. The path to clarity is there, but there's a lot of mucus in the way.

Physicians are going to scoff. Claims payers are going to sneer. Claimants are going to jeer.

But here's what we know: Nearly all the time the identity of the claims payer is known. The vast majority of injuries follow well-defined pathways of treatment and disability. And all of that activity is accounted for in a payer's UR processes.

The moment a First Report of Injury hits the claims system the diagnosis reported should trigger the dissemination of accepted treatment protocol, with a checklist, to the physician. In fact, it should occur even before the claims payer gets that First Report.

In other words, even though there are published treatment guidelines, there aren't readily available UR guidelines - so the medical portion of claims proceed into a guessing game. Maybe the request is adequately documented, maybe not - the provider doesn't know until the request is submitted.

The provider should know BEFORE the request is submitted.

Remember we have this marvelous communication invention called the Internet. There's no reason the payer's UR standards for the most common injuries isn't published and readily available, with a checklist for the provider to ensure compliance.

How can one play by the rules if one doesn't know the rules?

I know. It's too simple.

On Sunday the mucus was gone, my sinuses were clear, I could hear (albeit with tinnitus) and everything was back to normal.

That simple.

This Ain't Gonna Work

I'm not sure what to expect from the Rand report on earnings losses that was prepared for the California Commission on Health Safety and Workers' Compensation as directed by the legislature in SB 863 to determine the handling of the $120 million slush fund.

The idea of the slush fund was suspect from the start - it was a last minute compromise with no boundaries, no rules established, to get SB 863 passed.

It's purpose was to provide additional indemnity to injured workers with disproportionate earnings losses.

The problem from what Rand is reporting is that nearly all injured workers - at least the demographic studied - have disproportionate earnings losses.

The report says the average decline in post-injury earnings for permanently disabled workers is 42.1%.

But it's shocking that the report finds that workers with impairment ratings of 1% to 4% have an average decline in earnings of 30.9%.

And for workers with impairment ratings of 95% to 99%, the loss in earnings is 93.6%.

Either something is seriously wrong overall with workers' compensation, or something is seriously wrong with this study.

The report states, "Even uninjured workers, on average, show a 15% decline in earnings when observed during a similar period of time. This highlights the primary limitation of using actual earnings to estimate the impact of an injury – individual earnings could decline for many reasons, some of which have nothing to do with the injury."

Frankly, drawing any meaningful conclusion from this study relative to policy implementation is going to be very difficult if the Average Joe Worker over the course of the study time table has a 15% decline in earnings. This conclusion seems

The report authors assume 60,000 workers will be permanently disabled each year. I just don't see buy that - I think the number is much, much higher than that. Over 350,000 applications for adjudication of claim are filed every year with the workers' compensation appeals board district offices and most of those settle with some payment of permanent partial disability indemnity.

The authors also state that 34,380 of those workers −57.3% − will not return to their at-injury employer within two years after the injury and that 84.9% of workers who do not return to their at-injury employer, or about 29,000 employees, will experience above-average earnings losses.

Something is amiss.

The authors believe that this demonstrated decline is due primarily to attrition of workers from the EDD database over time (e.g., because of retirement, exiting the labor force, moving, etc.).

One of the premises of the study is to provide a definition of what is "disproportionately low in comparison to their earnings loss" within the meaning of section 139.48 of the CA Labor Code.

The study authors acknowledge three inherent, and big, limitations in their study:

"One is a lack of post-injury income other than earnings reported to the EDD. An individual’s actual post-injury income will include many sources that are not reported to the EDD (e.g., retirement or disability benefits). Because these are ignored in this work, it is likely that the estimates here overstate the post-injury decline in earnings and overstate the number of potential beneficiaries. Another source of uncertainty is the potential behavioral response by workers as a result of the new payment. We used a very wide range – double – of potential beneficiaries to capture this effect, but it could be improved over time as the use of the SJDB is monitored. Finally, while the aggregate benefit level is fixed
in the statute ($120 million), key factors such as the number of injured workers and economic conditions vary over time. Without knowing how many injuries there will be, and how many of those injuries will be significant enough to lead to economic losses large enough to make someone eligible for this program, it is impossible to predict exactly what the aggregate program cost will be."

Honestly - back to the drawing board on this. The Rand study is incomplete, error prone and should not be the basis at this time for such a huge change in policy. The premise behind the study is flawed.

The authors are focused on defining "disproportionately low" empirically, but the empirical evidence itself is flawed.

Rather, it seems to me that the "director" (as used in LC 139.48) should dictate FIRST what the eligibility framework is going to be - e.g. only 70% or greater PD ratings such as required to qualify for the inflation adjusted "life pension" payments.

As proposed by Rand, this program is doomed to failure. CHSWC should reject the proposals by Rand, the director should redefine the limitations of the program as authorized by the law, and Rand should go back to the drawing board for a new proposal.

CA's New Rate Filing Reflects Uncertainty

The political grandstanding that is typical this time of year when the California Workers' Compensation Insurance Rating Bureau publishes is pure premium rate request should be boisterous.

The WCIRB's Governing Committee yesterday voted unanimously to approve a 2014 advisory pure premium rate of $2.70 per $100 of payroll.

This is 3% more than the $2.62 rate the committee approved in August and is 6.9% higher than the average insurer filed rate of $2.53.

And even then rates may be inadequate to cover loss developments according to members.

The combined ratio remains well north of 100%.

Much of the uncertainty stems from the pending conversion to the Resource Based Relative Value Scale for physician reimbursement.

Estimates on the impact of the conversion range from no impact to an increase of up to several hundred million dollars.

The reason for the vagueness is that there are codes in the current system that have not yet been "cross talked" to the RVRBS.

Adding to the complexity is that for unknown reasons claim frequency has been climbing.

Increased frequency and medical loss-cost development that was observed in data collected through the end of June accounts for more than two-thirds of the proposed rate increase. (About 2% of the increase for 2014 is attributed to higher permanent disability benefits.)

Some suspect this is due to resolution of complex older claims that had been languishing because of Medicare set-aside requirements as well as the nature of the injuries.

Since complex claims mostly involve medical issues it’s possible that the increased settlement rates on older claims could be driving up the medical loss development from previous years.

But old complex claims doesn't account for all of the increase.

Claim filings spiked throughout the country in 2010. But claims have decreased in other states. In California though, 2011 was flat, and increased about 3% in 2012. The Rating Bureau is currently projecting a 6% increase in claim frequency for 2013.

Executive vice president and chief operating officer for the WCIRB, Dave Bellusci, called the 6% projection "a little bit alarming.”

I think that's an understatement.

Frequency drivers are going to be the subject of further study.

The WCIRB plans to submit the 2014 rate recommendation to the state Department of Insurance by the end of the week. And I'm sure Insurance Commissioner Dave Jones will thunder from the pulpit about excess rates. We've been down this road many times.

There are so many variables in play right now in California that the ability of the actuaries to come up with any projection amazes me. Lien litigation, RVRBS, frequency drivers, permanent disability changes, supplemental fund, clean up legislation, pro sport exemptions - the list goes on and on.

And of course the WCIRB rate is only a recommendation. The California market continues to be very competitive. There is no shortage of capacity in the market right now.

With a growing economy, albeit slowly, payroll expansion is going to move premium faster than rate increases.

Still, the temptation will be to make some changes and this temptation needs to be resisted. It's time for the system to settle down. The last 10 years have been tumultuous for employers trying to pin down their workers' compensation budgets. It's been damned near impossible.

SB 899, legal challenges, regulatory moves, SB 863, more regulatory moves and legal challenges - and in the meantime the employer community is trying to figure out whether or not more people can be hired or where automation and technology can be implemented to minimize risk and fluctuation.

I pointed out yesterday how complex just getting a medical-legal evaluation is in California, prompting the Division of Workers' Compensation to publish an educational webinar on the topic in a few weeks.

Complex systems take time to mature - people need to adjust their own routines and systems for efficient operations. In time, assuming no more changes, we can have a baseline operating standard and then true efficiency can be measured.

So while comparing rate per payroll is a measure of employer cost year over year, those comparisons aren't particularly useful to the financial officer writing the premium check at the employer's offices.

The challenge over time will be to resist the temptation to make changes and let the past 10 years settle into a routine.

But workers' compensation is historically a political football. New people come into town without adequate perspective of the past and their own ideas on how to make things work.

If California wants a stable workers' compensation market and system, things need to be left alone for a while - even in the face of adverse (depending on perspective of course) judicial rulings ... which will surely occur over time.

So ignore the political grandstanding that is quite likely to occur. Carriers are writing, there's good competition, and let the claims experience settle down a bit.

RVRBS and Quality - Does Anyone Care?

Paying for medical services is hugely complex because of competing interests.

Factor in the added complexity of workers' compensation's indemnification factors, which ultimately rely on the execution, delivery and interpretation of medical services, and the complexity increases substantially.

California's conversion to a Resource-Based Relative Value Scale fee schedule, which has been in the works for years, is drawing out these competing interests more acutely as the time for implementation draws near.

Some physician groups have been saying that moving to an RVRBS system will alienate doctors even further and constrict access to care because specialists will not be reimbursed sufficiently to encourage their participation.

Others argue that an RVRBS system, which according to reports will increase reimbursement for primary care physicians, will actually increase access and improve outcomes by redirecting the motivations of practitioners.

And of course there is the old debate about how costs to employers will be affected.

Earlier this week the California Workers’ Compensation Institute that the division’s plans for annual inflation adjustments to its proposed medical fee schedule will eventually exceed 120% of Medicare and will cost the employer community much more than legislatively intended due to the way the Division of Workers' Compensation is interpreting the law and implementing the regulatory framework.

The DWC says that the way CWCI has calculated costs is erroneous, and that DWC's application of RVRBS, which ties rate structure to Medicare rates, will maintain medical costs within the Labor Code's mandate of no more than 120% of Medicare.

At the heart of the various arguments is how Medicare adjusts rates over time with annual inflation adjustments.

CWCI says that DWC's proposed methodology will result in total allowable fees for physician services to increase by $250.23 million during the DWC’s proposed four-year transition to RBRVS.

They say the Labor Code allows the DWC to adopt conversion factors and other adjustments affecting physician payments that are different than those used by Medicare so long as total aggregate fees in the work comp schedule don’t exceed 120% of Medicare’s total allowable fees for the same services.

“Unless this section of the law is applied in the physician fee schedule regulations adopted by the DWC, the compounding effect will drive up allowable physician fees beyond the 120% cap and undermine reform savings intended to pay for increased disability benefits for injured employees,” CWCI said.

DWC says CWCI is interpreting the law incorrectly and that SB 863 says aggregate fees under the RBRVS fee schedule can’t exceed 120% of aggregate fees under Medicare as of July 1, 2012, and as adjusted for the Medicare Economic Index and relative value scale adjustments.

DWC's interpretation is that this is a legislative mandate that the workers’ compensation fee schedule diverge from Medicare, but that the update factors in the proposed fee schedule regulations utilize Medicare’s MEI and Medicare’s relative value scale adjustment factors as required by SB 863.

I don't know who is correct in this debate.

I'm not even sure it matters.

Once again, the workers' compensation world revolves around the cost of the system, rather than the delivery of quality care to injured workers.

The debate should really be about whether this conversion will: a) promote efficient, effective medical care to injured workers; and b) provide sustainable access to care by encouraging good medical participation.

The debate about costs arises only within the context of the payer community, be it insurance companies or self-insured employers, whose focus, in my opinion, is short-sighted.

The "long-tail" of workers' compensation claims has direct relationship to the quality of medical care delivered: timeliness, appropriateness, effectiveness - qualitative factors that can not be measured by a reimbursement schedule but which have direct impact on the duration and extent of disability.

In other words, the indemnity part of a claim.

The RVRBS debate is unfortunate, because it distracts the industry from a more robust, healthier (pun intended) debate about medical care payment and delivery - how to motivate both the doctor and the patient towards better outcomes.

So long as the industry makes costs its focal point there won't be any sound strategy, investigation, imagination, or development of methodologies to encourage quality over quantity, to the chagrin of the injured worker waiting to get the care needed to return to work, and the employer whose experience modification factor is unnecessarily inflated due to claim duration.

RAND & WCIRB Finally Address Small Employers

Last week the Rand Corporation released a study prepared for the Commission on Health and Safety and Workers’ Compensation on the effect of experience rating modifications.

The conclusion of Rand was that lowering the premium threshold for California employers to be eligible for experience rating modifications would improve worker safety and reduce employer costs.

This has been a topic of discussion for the past couple of years at the Workers' Compensation Insurance Rating Bureau (WCIRB).

As of July 1, 2012, the qualifying threshold for employers to receive an experience modification factor is a total of $25,225 in premium over the previous three years, calculated at the pure premium rate level as opposed to the premium actually paid to the carrier. So while an employer might have paid $28,000 in premiums over the previous three policy years, if its pure premium rates based on employee classification codes total less than $25,225, the employer would not be eligible for experience rating.

The Rating Bureau sets the rating threshold for California employers in its Experience Rating Plan, and the Insurance Commissioner has to approve any changes to the plan.

To measure the impact that experience rating has on employers, researchers compared businesses that recently became experience rated to those that were near the threshold, but didn't qualify for experience rating. The differences between the two groups should come as no surprise to anyone that believes in the power of market economics on human behavior.

This comparison of “virtually identical” employers showed an 8.4% decrease in claim reports after a business became experience rated for the first time.

While there was a decrease in claim activity for employers recently experience rated, the average cost per claim did not change. The researchers say it was unlikely that these employers were suppressing claims.

If employers were not reporting claims, Frank Neuhauser, a researcher with the University of California, Berkley, and one of the authors of the study, said the average cost per claim should increase, in part because smaller claims are easier to conceal. Additionally, smaller claims have a bigger impact in calculating experience modifications, or X-Mods, and the premiums that employers ultimately pay.

Another point of contention in the equation is the "split point" used to determine any discounts.

In calculating an X-Mod, carriers use the full cost of the claim up to the split point threshold, which is $7,000 in California, and discount the cost of the claim above that amount. The premiums charged to a small employer that is experience rated would increase by about the same amount if that business had a single $4,000 claim or a single $1 million claim.

Carriers can apply debits and credits to increase or decrease the premiums they charge, and larger carriers will often have two subsidiaries, one offering lower rates for employers with better claims histories, and the other charging higher rates for more risky employers.

But carriers aren't applying the discounts to small employers, largely because they don't consider the experience of a small employer to be credible in predicting future experience - their loss experiences are too diverse to be predictive of future behavior.

The next step researchers are going to look at, according to the story, is to examine the effect of adjusting the split point for determining primary and excess losses to see if lowering the split point reduces the variability in premiums charged to small employers.

This has been a point of discussion within the WCIRB of late, and the National Council on Compensation Insurance (NCCI), rate maker for most states, has already put into place plans to increase the split point and then tie it to inflation.

Which brings me to my basic point - in California we had a monumental change to the workers' compensation laws dealing with claims, and primarily litigated claims. These changes were pushed by Big Business and to a lesser extent Big Labor.

There was no consideration for Small Business. There was no consideration for dealing with the underwriting component of workers' compensation - the part that most directly affects Small Business.

And yet Small Business when aggregated is by far the biggest employer in the state and is disproportionately affected by the costs of workers' compensation both directly and indirectly.

I see that as a fundamental flaw in the entire negotiation and implementation of SB 863 - especially in light of the fact that in rating an employer for premium purposes the system makes a big distinction concerning the size of the business.

Listen, we all know that Small Business has no say in the California Chamber of Commerce, one of the big proponents of SB 863. We all know that Small Business really has no clout, no organization, no unification whatsoever in the political process of Sacramento. The Small Business owner is too busy trying to make payroll, manage inventory, people, customers all by him or her self.

At least it appears that the WCIRB is listening, and has some idea that Small Business really is important to the economy.

Working the experience modification formula and rating thresholds is a good first step towards making the economic burden of paying workers' compensation premiums, and engendering a more safety conscious Small Business population.

On another note, it was interesting to see, the day after my vacation started, that the Los Angeles Times ran a story about Deloitte's imbalanced ability to leverage contacts, political contributions and persuasion to garner California state information technology contracts and the huge cost overruns, as well as failed implementation, of these systems - notably the Division of Workers' Compensation's Electronic Adjudication Management System.

It's no secret that I'm no fan of EAMS. I'm not a computer expert, but I do know how shared systems should work. EAMS in my opinion is far from where a professionally built multi-million dollar network should be in terms of user access, ease of use, customization, reliability, etc.

The Times story touches on why EAMS doesn't do what I think it should do: money influencing politics. I'm glad to see that a large daily publication at least is bringing this to the public's attention, albeit a bit tardily.

Are Liens the "Problem", or DWC's Problems Underscored by Liens?

A recurring theme in California workers' compensation "reform" discussions of late is the issue of liens.

For those of you who do not work in the California system, the state has a rather unique process where by service reimbursement claims, or other claims such as for child support or living expenses, can be protected by the filing of a lien against the injured worker's litigation case.

Technically under the law it is a "lien against compensation" but this term has been loosely interpreted to give lien claimants an autonomous right to seek collection independent of what is actually paid to the injured worker.

The Division of Workers' Compensation (DWC) has declared that liens are a significant source of system inefficiency and is in the process of making changes to deal with them.

But there are many unanswered questions and conclusions being made at the DWC level that do not follow logic, and consequently I fear the implementation of rules, regulations or system changes that have not been thought out and may result in unintended consequences.

According to the Commission on Health and Safety and Workers' Compensation (CHSWC), the number of liens being filed into the system in 2003 totaled 598,000. In 2004 a $100 filing fee on liens was credited with reducing that number to 224,205.

But because the DWC was not set up to be a collection agency enforcement of the filing fee itself became an administrative burden, leading to repeal of the fee in 2006.

Now, according to CHSWC, liens being filed has increased to 517,722 in 2011.

But didn't DWC just spend $60 million on a computer system to make filing of forms, including liens, more efficient? If the Electronic Adjudication Management System (EAMS) is really working on the public end, then just FILING of liens should not impose any additional pressure on the system.

Theoretically, lien claimants should be using EAMS to file their liens into the system, and there should really be no additional burden on the DWC...

Unless EAMS isn't doing the job efficiently - perhaps the issue is that too many liens are being filed on Optical Character Recognition (OCR) forms, which require an inordinate amount of clerical time to input, rather than lien claimants getting the data into the computer system themselves.

OCR forms increase clerical burden because EAMS has a poor scanning station workflow and the equipment installed in the District Offices doesn't work as intended. It just takes too long to get a lien package through the scan station because there is always something wrong with a form or business rule – the data entry constraints are too tight and clerks have to essentially retype all of the data manually into the system.

This could explain the administration's frustration with liens, because otherwise who cares what is FILED? Filing does not take up DWC resources, unless filing requires an inordinate amount of interaction by DWC clerical staff. Admitting to this problem, however, would be a source of embarrassment for the administration.

DWC also complains that liens are taking up court time that should otherwise be devoted to adjudicating injured worker's claims to benefits, citing in particular statistics pointing to the problem being uniquely Southern California based.

What's wrong with this picture is that it doesn't make any sense. Southern California is subject to the same rules and regulations as Northern California, but the north doesn't have a "lien problem" like the south does.

Why is this? Has anyone stopped to understand how one part of the state can have a singular issue that is not experienced in the other part of the state? If a situation is unique to one geographical zone, does it make any sense to subject the entire state to rules or regulations to correct that problem?

I have had this anomaly explained to me that the "culture" in Southern California is different than in the north. I'm not sure what this means. Are judges less tolerant of aberrant behavior in the north than the south (in which case it seems that JUDICIAL reform is needed)? Are there more lien based service providers in the south than the north (which doesn't make sense either because there are more judicial resources in the south which, theoretically, means there should not be a significant difference in the ratio of lien claims to judges)?

Additionally, on page 9 of the CHSWC Lien Report it states that in Los Angeles, the busiest Board in the state for liens, there are 144 Lien Trials set per MONTH. That equates to 6.5 per day if using a 22 working day calendar.

Of those 6.5 per day, it says that 35% are settled, not taking the Judge's time, so that makes 4.22 Lien Trials set per day. (Maybe the Judge's take Friday's off, but everybody else works 5 days per week, so I don’t accept Fridays off). Four lien trials per day is not a HUGE lien problem in the biggest District Office in the state with by far and away the most judges. While many more lien ISSUES appear at the LA office on a daily basis, these are not taking up the Judge or courtroom time, because the parties are simply using this location as a mandatory settlement area.

Liens are not “consuming 35% of the court’s calendar” as the CHSWC Lien Report states on page 1. If liens really are taking up 35% of the court’s calendar then the court has a CALENDARING problem, and not a LIEN problem. They need to manage their calendar and courtrooms more efficiently in light of how liens are actually used in the system, which would be an EASY fix and require no legislation or regulation changes (or public hearings).

Here's another thought - the reason the massive volume of liens are FILED in the first place is because it is the ONLY way a lien claimant can get noticed of hearings, get service of settlement documents, legally get information on a case, and have any kind of threat with the insurance carrier or third party administrator to ultimately get paid.

Finally, DWC has been on an austerity budget the past few years, with a hiring freeze while judges and other staff members were leaving the agency for greener pastures. So while lien filings, and presumably the amount of lien hearings, were still below 2003 levels the amount of adjudicatory resources available to deal with the volume decreased ... a lot.

DWC is now on a hiring spree - how will these additional resources impact the burden on District Offices?

DWC is taking "reform" issues on the road in April. Included in these issues is what to do about the lien "problem". I suggest that CHSWC and DWC answer some of the questions raised in this editorial before seeking solutions.

Market Basket Fine Shows Enforcement is the Only Relevant Safety Motivator

Right on the heels of my post on Monday about a study from the Rand Corporation concluding that safety plans are benign relative to improving safety, but that enforcement was the prime motivator, comes a story this morning about a significant safety enforcement action.

The U.S. Labor Department has asked the Occupational Safety and Health Review Commission to compel Tewksbury, Mass.-based DeMoulas Super Markets, owner of 60 Market Basket stores in Massachusetts and New Hampshire, to correct safety problems and pay fines of $589,200.

In 2006, after being cited by the Occupational Safety and Health Administration (OSHA), DeMoulas agreed to complete job-hazard analyses in all of its stores but failed to do so.

The Labor Department's complaint alleges that employees at the stores were exposed – or were likely to be exposed – to hazards from unguarded, open-sided work and storage areas, including storage lofts, produce coolers and freezers.

Also alleged in the complaint is that the supermarket chain failed to protect workers in the produce, deli and bakery departments from laceration hazards from knives and other cutting instruments by not conducting an analysis of job hazards.

An employee was seriously injured in April 2011 when he fell 11 feet onto a concrete floor from an inadequately guarded storage mezzanine, and an employee at a Billerica, Mass., store was seriously injured under similar conditions in 2007 according to OSHA.

Between 2008 and 2011, employees at stores in Rindge and Concord, N.H., sustained at least 40 hand lacerations.

OSHA said the DeMoulas complaint is only the second such action taken by the Labor Department, which filed a complaint against the U.S. Postal Service in July 2010, seeking the correction of electrical safety violations at 350 post offices throughout the nation.

DeMoulas is contesting the FINES according to the OSHA press release, which is silent about any action DeMoulas is taking relative to correct the safety problems.

The point is that the super market chain/employer did not take seriously the agreement to complete job-hazard analyses.

It took enforcement action to get this employer to view workers safety in a serious manner. 

That's a sad statement as to this employer's commitment to doing business in the United States in a legal, ethical and morally conscionable way, and testament to the fact that labor enforcement departments on both the federal and state level need adequate funding in order to protect the working population of this nation.workers compensation, work comp, injured worker 

Safety Plans Inconsequential; Enforcement is What Reduces Injuries

Workplace safety is a good thing, and is often cited as the driver behind a continuing declination in injury frequency.

21 states mandate that businesses have some sort of "safety plan". Logic would say that this mandate is part of the reason behind work place safety improvements and that safety plans are a primary reason why injury frequency rates have improved.

As with most things that seem logical, there has never been any empirical study to determine whether such logic is valid. With many such cases of assumption, the empirical evidence suggests that such assumptions are not supported, according to a news report in WorkCompCentral this morning.

Rand Corp.'s Center for Health and Safety in the Workplace has released a preliminary draft of a study report, "An Evaluation of the California Injury and Illness Prevention Program." Rand concludes that while mandatory written safety plans have not significantly reduced workplace injury and fatality rates in California, several elements that must be included in the safety plan, such as training and hazard abatement, do appear to lead to safer workplaces.

While the elements of an injury prevention plan are "obvious ingredients" of a good safety program, there is surprisingly little research that confirms the written plans themselves are actually effective, according to the report.

"Moreover, it is not at all clear that a mandate to adopt these practices will result in the same outcomes as when they are adopted voluntarily," the study's authors wrote. "Firms may do as little as they can get away with and, depending upon the enforcement effort, that could include doing nothing at all."

California has mandated that businesses implement and maintain an "effective" injury and illness prevention plan since July 1991. Title8, California Code of Regulations Section 3203 requires the plan to identify who is responsible for implementing the safety program, ensure employees comply with safe work practices and ensure the plan is communicated to workers. The plan must also include procedures for identifying and evaluating work hazards, outline the procedure for investigating occupational injuries and provide training and instruction when the program is implemented, when new hazards arise or when new employees are hired.

Outside of the first two years following the enactment of the injury prevention plan mandate, the number of violations for not having a written plan in place has held steady. About 20% of inspections were for not having a written plan, and 16% were for specific violations, such as not documenting a hazard survey or employee training.

Whether the prevention plans reduced fatality rates compared to other states, the authors "did not find any improvement." They added that even if an improvement was noticed, it would have been difficult to determine whether the safety plan was responsible or whether other factors contributed to reducing fatalities.

What the study did find is that citations for violations for failure to provide training improved safety - in other words requiring a plan itself did nothing towards safety, but enforcement of safety training requirements greatly improved work place accident and injury rates.

"The most consistent finding for the subsections was that a citation for failing to provide appropriate training was linked both to poorer performance prior to the inspection and to improved performance (a 44% reduction) after the inspection," the report said.

In addition, passage of time introduces complacency.

"The motivational effects of a serious violation fade over time and compliance decays," the report says. "In contrast, it is plausible, but hardly guaranteed, that efforts to support the practices required by a firm’s safety and health program could have more enduring effects."

It's unfortunate that safety is subject to our old nemesis, human behavior, but when legislators start trimming safety enforcement budgets this report will surely surface to combat the red ink.workers compensation, work comp, injured worker