The Ignorant Aging

I'm not an AARP member ... yet. Maybe I should be - heck I'll be 60 in just over 3 more years.

AARP has a big section on their website about working at age 50 and over. It details how to find jobs, what to say in interviews, how to assess benefits, talks about unemployment, self-employment and small business.

They say nothing about getting hurt on the job.

Dad

Yet, this demographic, the "aging workforce," has been specifically catalogued by the workers' compensation underwriting and claims community as a particularly high risk due to comorbidities, fragilities, and other age related ailments that can manifest at an instant with or without physical provocation at the work place.

It is also this particular demographic that is ill prepared to NOT work - the baby boomer generation still lives pay check to pay check; in other words they MUST work...

Yet, AARP (nor most other organizations) does absolutely no education to their constituents and members about work place injuries, about workers' compensation or how the system works, leaving this demographic especially vulnerable to surprise, or worse, abuse.

I guess this isn't really a surprise. Nearly no one educates the working population about workers' compensation, or any work injury program, until it's too late, after an injury occurs (or is claimed).

Many states have laws that require the "employer" to provide workers brochures and notices about workers' compensation, but frankly, no one reads those. They are textually dense, full of words that require a dictionary, have little relevance to the "now" and besides, everyone remains in denial about work injuries until they happen.

Then it's too late.

We talk a lot about national discussions - what should workers' compensation be, how can it be improved, how do we do a better job of taking care of the industrially injured ...

Yet we do a miserable job of public outreach.

Why would anyone give a rat's arse about changing anything if they have zero idea of what is to be changed in the first place?

Gaining knowledge about workers' compensation is sort of like learning about sex as an adolescent - most parents are loath to breach that sacred topic, and if they do then it's in shrouded terms of embarrassment; so we learn by doing, sometimes with terrible consequences...

So it is with workers' compensation: expectations at time of need/desire fail to match reality.

And we shouldn't sugar coat the workers' compensation story either.

When my son began adolescence, I literally hit him in the head with a box of condoms and told him my two golden rules: don't be a dumb arse, and beware the power of female genitalia (I used more profane adjectives...).

That lesson was reinforced from time to time with similar provocative, yet effective, communications.

Talking about what work comp should be is probably a good discussion. The "Grand Bargain" has veered off course I think.

But more important is telling the story of comp, in real and frank terms, to those most affected: workers, and the employers who pay the bills.

We can start with the various organizations that communicate regularly with at risk demographics, like AARP.

Hit them in the head with the proverbial box of condoms...

**********

On Tuesday, August 25 at 11:15 ET I will moderate a panel at the WCI Conference in Orlando, FL on the topic, "The Image of Workers’ Compensation and What Industry Can Do About It." Here's my panel:

Deborah L. Michel
Executive Vice President of Major Accounts,
Liberty Mutual Insurance
President,
Helmsman Management Services, LLC
Warrenville, IL

Rebecca Shafer
President
AMAXX Risk Solutions, Inc.
Hartford, CT

Michael Grabell
Journalist
ProPublica
New York, NY

Bethany Boggess, MPH
Research Coordinator
Workers Defense Project
Austin, TX
Part of the image has to include acknowledgements by the industry of the perceptions of work comp. I hope you're able to join us.

Part 23

The Federal Aviation Administration received a command from Congress three years ago to streamline and facilitate the small aircraft certification process.

Manufacturers of airplanes and aviation equipment had long been complaining that the onerous certification process costs more in inspections and paperwork than manufacturing most parts, and that it added ridiculous overhead to airplane manufacturing.

Citing a long trend of declining aircraft sales, the aviation industry convinced the Feds that an important sector of the economy was drying up, that America was no longer competitive in the global aerospace sector and that existing FAR 23 (Federal Aviation Regulations Part 23) was a major contributor to aviation's decline.

Part 23 came into existence around 1970, a reform of the first certification regulations for general aviation aircraft promulgated just after World War II, then known as CAR 3, to handle the massive influx of new aviators.

Back then, safety in manufacturing was regulated by strictly defining exactly what everything did from an engineer's standpoint - i.e. setting forth specific, prescriptive, design criteria within the regulations.

For instance, the battery in Forty One Mike must meet very detailed design requirements detailed in 8 paragraphs and two sub-paragraphs in section 23.1353. You'd think a battery is a battery and the simple requirement that it be safe would be sufficient - but the regulatory philosophy that existed when section 23.1353 was written 45 years ago was prescriptive; the engineers knew exactly what worked and safety was paramount so every single battery had to be exactly the same except for size because that would be dictated by application.

Obviously things have changed in the nearly half century since Part 23 was written.

Worse, in order to keep up with technology, exceptions, waivers, amendments, etc. have made the regulations a tangled mess of illogical and irrelevant bureaucratic quagmire.

It's taken three years, but a revised Part 23 is now out for public comment.

The design philosophy that underwrites the new regulations is performance and risk based. The old regulations were, as noted, prescriptive in nature.

Gone are specific engineering requirements, replaced by philosophical direction. Forty One Mike's battery just has to have a certain capacity to power the plane's electrical system for 30 to 60 minutes.

This leaves designers much more freedom to build airplanes and their parts more efficiently, ergo less expensively. It also means that there's considerably less federal oversight and paperwork, because the details of size, shape, weight, ignition, etc. are left to the builder, not the government.

Workers' compensation goes through hemorrhaging reform every few years or so. Each of these reforms simply builds upon the earlier design philosophy of lawmakers - a prescriptive regulatory framework with the good intent of ensuring public safety by specifying exactly what needs to be done, when, how and by whom.

Nearly everyone in work comp, and in particular our customers (i.e. injured workers and their employers) have complaints and frustrations with our complex rules. Claims departments are much more concerned with compliance than actual performance. Meet the numbers is the design philosophy of much of workers' compensation.

This makes sense - workers' compensation has been around for over a century and it is difficult to say the least to change anything, so incremental changes centered on the basic underlying, original, design philosophy is much easier than starting out with a clean sheet.

But, the economy has changed dramatically. Work has changed even more so.

And global competitiveness is even more pressing than ever.

What if, instead of going back to the same old design philosophy of prescriptive regulation when the reform cycle comes around (which it will) the environment was changed to a performance based outcomes requirement?

What if, instead of saying that someone can only have 24 physical therapy visits, that we simply said that both the vendor and the customer would be expected to meet certain milestones at certain times in a claim life?

What if, instead of restricting temporary disability indemnity artificially to 120 days, that there was a "consensus standard" as the desired outcome based on injury?

Perhaps workers' compensation, by its nature and the fallibility of human logic, can't withstand such a massive change in philosophy.

But perhaps it already is undergoing such a massive change via the under-swelling of professionals that see a different, and hopefully better, way of managing work injury; some call this Advocacy Based Claims Management, others just call it "doing the right thing."

What if our laws were really about just doing the right thing, instead of meeting a bureaucrat's prescription?

We may never get such laws. Entrenched competing interests may be immovable.

But, as former Royal Air Force Capt. Pablo Mason famously said after being terminated from a private charter airline for allowing star soccer player Robbie Savage into the cockpit to allay fears of flying, "Rules are for the guidance of wise men and the obedience of fools."

Let's be wise. Not foolish.

The Oklahoman

On Friday The Oklahoman editorial board published a critical opinion of that state's Supreme Court's rulings that, so far, have declared various provisions of the 2013 workers' compensation reform law unconstitutional (Rulings Blunt Effects of Oklahoma Work Comp Reform -

http://www.oklahoman.com/rulings-blunt-effects-of-work-comp-reform/article/5491754; payment required).

The editorial board claimed that, "For decades before the law was changed, the system mostly benefited the handful of law firms that specialize in workers' compensation cases. The system was a huge burden on Oklahoma businesses, which saw their annual workers' comp rates rise through the years, even as the number of claims filed by injured workers decreased."

Advising that the state's legislature should probably take up revising it's attempt at reform sooner than later, the opinion exclaims, "In the end, though, the high court may force the

system back closer to the old status quo. As with lawsuit reform measures, the workers' comp decisions affirm the notion that legislative fixes never end a problem. They only seem to reveal another series of problems. In this case, the empire has struck back with a vengeance. The winners could be injured workers, to be sure, and their lawyers. The losers? Everyone else."

Submitting letters to the editor is limited to 250 words, and certainly I had  more to say about this editorial than 250 words would allow. Regardless, the following is my reply. I do not know if the editors published it.

*********

 Re editorial 4/15/2016:

While not from Oklahoma, I am founder and CEO of WorkCompCentral, a specialty media firm for the workers' compensation institution. We are neutral to any side other than to advocate for a healthy work comp program as it is an essential underpinning to the modern economy.

I appreciate that the editorial board, and perhaps the general population of Oklahoma, may be frustrated with the legal dismemberment of the 2013 reform, but let's be clear on one thing: if a law violates a state's constitution then it is not good for ANYONE.

Oklahoma certainly has had its share of workers' compensation frustration, but abrogating citizen's constitutional rights will not solve anything. Back to the drawing board? Perhaps.

But, you erroneously propose that the winners are injured workers and their lawyers, and that the losers are "everyone else."

If you work, you have a job. If you have a job then you, under the state constitution, are to be afforded work injury protection in the manner dictated by the legislature and consistent with the constitution.

There are about 3.9 million people in Oklahoma. Each and every one of them that works could be injured on the job at any time.

Work comp is not about just "injured workers and their lawyers." It is about every single citizen contributing to the economy, i.e., your "losers." Everyone loses when their constitutional rights are destroyed...

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...

REFORMED?

There are now two independent reports out that call into question administrative and lawmaker's early assertions that the 2012 reform in California, SB 863, has met target goals.

One goal was to reduce friction in the California work comp system by interposing new administrative paths for various specialty disputes, such as the resolution of medical treatment requests. Another was to reduce costs in the system to pay for benefit increases by building roadblocks for vendors such as independent bill review and lien filing fees.

In the first instance, at least, the law encouraged payers to escalate their spending in response to the bureaucratic burden. In the second instance, it seems, that when push comes to shove those claiming unpaid balances on their vendor bills aren't discouraged by paying a lien fee.

Carriers and self-insured employers paid an estimated $7.647 billion in loss-adjustment expenses, commissions, acquisition fees, general costs and taxes in 2014, according to the Commission on Health and Safety and Workers’ Compensation's 2015 annual report.

Compare to $7.553 billion for medical benefits and $5.079 billion for indemnity benefits in 2014...

Though not the first time that administrative burden has exceeded actual benefits in California, the rapid pace of growth stemming from SB 863 is a worry.

Expenses increased 13.9% to $6.965 billion in 2013 compared to $6.114 billion in 2012. And the $691 million increase in expenses in 2014 was a 9.9% increase over 2013.

A breakdown of expenses by category in the report shows loss-adjustment expenses -- which include costs for IMR and UR, bill review, defense attorney fees, overhead and other costs associated with handling insurance claims -- are the fastest growing component of expenses.

Loss-adjustment expenses increased 12.36% to $4.364 billion in 2014 from $3.884 billion in 2013. Loss-adjustment expenses in 2013 were 18.92% higher than the $3.266 billion paid in 2012.

General expenses, which are not defined in the report, added another $1.229 billion to costs in 2014, but this was only 4.86% more than the $1.172 billion in general expenses reported for 2013.

In the meantime, the volume of liens filed is nearing pre-reform levels, having doubled in 2015, according to the Workers’ Compensation Insurance Rating Bureau.

There were 362,899 liens filed in 2015, according to the agenda for the March 22 meeting of the WCIRB’s Actuarial Committee, which is 91.1% more than the 189,951 liens filed in 2014, and 94.8% more than the 186,264 liens filed in 2013.

Compare to the period of 2000 to 2011, which recorded an average of 373,488 liens filed per year, 2.84% more than the total number filed in 2015. From 2000 to 2014, an average of 402,490 liens were filed each year, 9.84% more than what was filed last year.

Most of the volume increase was due to medical, and yes, Los Angeles County's reputation for leading the rest of the state in medical costs is reflected in the lien stats.

Medical providers filed 309,693 liens in 2015, up 97.6% over the 156,770 liens filed in 2014 and more than double the 137,982 filed in 2013.

A total of 230,436 liens were filed in Los Angeles County (accounted for in the Long Beach, Los Angeles, Marina Del Rey, Pomona and Van Nuys district offices) in 2015, an increase of 92.8% over the 119,522 filed in the county in 2014.

The remainder of the Los Angeles area (Anaheim, Oxnard, Riverside, San Bernardino and Santa Ana) saw a 96.1% increase in liens, with 91,612 filed in 2015 compared to 46,762 filed in 2014. San Diego had the single largest increase, 11,052 liens filed last year which was 108.8% more than the 5,294 filed in 2014.

The rest of the state wasn't immune from lien filing increases though.

Liens filed in Eureka, Redding and Santa Rosa increased 35% to 1,339 from 992; liens filed in Sacramento increased 30% to 2,009 from 1,546; and liens filed in Oakland, San Jose and San Francisco increased 28.4% to 9,207 from 7,169.

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.

Same Song, Different Dance

In the face of last year's negative press about erosion of benefits through the constant "reform" of workers' compensation, New York Gov Andrew Cuomo released a proposed budget for fiscal year 2017 that is being pushed by the state's business interests to address escalating costs.

New York last went through the hemorrhaging effects of major changes to its business-backed workers' compensation reform effort under the disgraced former governor, Elliot Spitzer's, administration in 2007 - so the timing is about right for a new reform movement: every 7 to 10 years...

And in fact the Business Council of New York State, had been seeking legislative "corrections" to the inadequately implemented Spitzer reform package since at least 2014.

About this time last year, the Council released "Fix New York: The 2015 Legislative and Regulatory Agenda," it's architectural plans for curing what the business community sees as a system run amok with cost overruns and inflated benefits.

That document described seeking an update to the medical impairment guides used to calculate schedule loss-of-use awards, to require injured workers to use a doctor from panels appointed by employers for the first 90 days following an injury, add a comparative negligence standard to the state's unique Scaffold Law, "de-index" the maximum weekly benefit from the state average weekly wage or adopt regional indexes, cap temporary disability status at 2 years post injury, among other proposals.

Legislative attempts the past couple of years have not moved forward - lawmakers presumably having better things to do than to monkey with workers' compensation.

There are other avenues to reform, however, and one of them is through fiscal management; i.e. budget.

And like any other political strategy, there are provisions that neither business nor labor find savory, and there are provisions that either may find beneficial to their special interests.

Cuomo's proposed reforms include reducing the number of Workers’ Compensation Board commissioners from 13 to seven; extending to 120 days the period a claimant must wait until seeking care outside of a preferred provider network; and penalizing carriers with sanctions of up to 20% of unpaid compensation if the board finds an appeal was filed on frivolous grounds.

Additionally, the State Workers’ Compensation Board would create an authorization agreement with medical providers, which would give the board “broad authority” to bar any provider who breaches the authorization agreement - but operational details are left out of the package, leaving the Board to make up its own rules of engagement.

The proposed budget legislation would also allow the SWCB to reassign a workers’ comp case to a new judge at any time, regardless of reason, something critics say could result in an abuse of power.

But the Council's wish list isn't complete in Cuomo's budget - there's no cap on temporary disability.

The governor’s office, in its Budget Briefing Book (page 113), said the proposals were aimed at improving the workers’ compensation system, a “$7 billion program (that) is complicated and cumbersome, delaying claim settlements and payments, and increasing costs to employers.”

Same song. Different dance.

After all of workers' compensation's publicity in the general media (and ProPublica is based in New York), will New York's voting population even notice, let alone pay attention?

Angels in Blue

NOT the crummy photo I shot from 41Mike!

When I was a young child I wanted to fly jets for the Navy. I was completely infatuated with Naval Aviation. Back then, the plane to fly was the F-4 (workhorse of Vietnam), but Corsairs, Sabers (actually, I think those were only Air Force), and pretty much anything else that burned kerosene and made loud noise would catch my attention.

My brother, friends and I would "fly" on the swing set, as high as we could go in attempts to "loop" just like dog fighters, and we would make jet kind of noises, and "radio" calls to one another.

And of course then the F-14, Tom Cruise and Top Gun came out. I think I watched that movie a hundred times.

But the creme-de-la-creme was, of course, the Blue Angels - gawd did I want to be one of them, in their flight suits, steely reflective helmet shields, and deep blue F-18s. I would fantasize about huge, diamond formation loops trailed with smoke a mile into the sky, and blasting past the stands just a couple hundred feet off the runway, inverted of course.

Those dreams were dashed though when I learned that imperfect vision was a dis-qualifier. Imperfect vision ... hell, I wore Coke-bottle glasses as a kid (which were supplanted by contact lenses when I discovered girls, and eventually radial keratotomy).

Still, when the Blue Angels are in town, I get excited like a 10 year old - every single time.

This weekend they're the headliner at the Point Mugu Naval Airshow at Naval Base Ventura County, Point Mugu.

I rarely actually go to the air show any more because I can see much of the show from my house just a few miles away. And I've been spoiled - when my boy was in high school, his best friend's father was Commander of the base so we got to sit in the VIP section, right in front of the action, with food and beer galore.

But that special treat got trumped yesterday upon my return flight from visiting Mom.

As I was descending into Oxnard, Point Mugu Approached advised another aircraft in the area about a Blue Angels arrival. I assumed the aircraft was approaching the Naval base airfield.

Then lo and behold, off to my left as I passed through 3,000 feet, there they were! Diamond formation of six ships, smoke trailing, leveling off after a loop! I got the best seat in the house in Forty One Mike!

I fumbled for my phone camera and took a crummy shot - trying to see what I was shooting on the LCD screen of the phone with sun in my eyes, sunglasses on, and hand flying the approach ...

Mugu Approach called me up just as I took that crummy photo to advise of the Blue Angels presence off my 11 o'clock and that the ships would be breaking right to enter the Mugu pattern.

"In sight," was all I could muster over the radio - I was so excited. I really wanted to yell, "You're Damn Right they're in sight, Yahoo!"

Honestly, I don't really know why the Blue Angels get me so excited - I've seen them dozens of times. They've flown the exact same routine for years. I would say that the new perspective from 3,000 feet was it, but I feel the same excitement every time on the ground regardless of where I am.

Workers' compensation has a weird hold on me too - after more than 30 years one would think this would get routine and boring. But every day holds a new surprise.

For instance, the Missouri Court of Appeals this week ruled in Kolar v. First Student that a morbidly obese bus driver was entitled to benefits for an injury to his left leg that was caused by his uneven distribution of his substantial weight after he suffered an industrial injury to his right leg.

The court ruled the claimant was entitled to have that award enhanced by 12.5% to reflect the cumulative impact of his disabilities.

This might not seem to be a big deal, but the Kolar case is the first published case to address whether the "multiplicity factor" for cumulative disabilities survived the 2005 legislative reform that did away with liberal construction of the Missouri Workers' Compensation Act.

Missouri workers' compensation judges have historically had discretion to award a worker with multiple injuries compensation above the sum owed for each of his individual disabilities, if there is evidence that the combination of those disabilities exceeds the sum owed for the disabilities individually. The extent to which the award is enhanced is known as the "multiplicity factor."

Since there is no provision for such an enhancement within the text of the Workers' Compensation Act itself, attorneys in the state have been saying that strict construction of the act's provisions would not allow workers to have a "multiplicity factor" included in their awards of benefits.

They were wrong - at least for the moment. The court said that since the Legislature did not expressly terminate the use of "multiplicity factors" then they must have intended to keep that practice.

Missouri observed their work comp law fly a huge, mile high, diamond formation loop - and then break right to enter the landing pattern.

Some things change, some things stay the same - it's all thrilling to me.

The Dependent Contractor

It seems that everyone that has an interest in employment law, whether it's workers' compensation, taxation, insurance, or whatever, has consternation about the booming trend of the "shared economy."

Uber, AirBnB, Lyft, and the many other types of services out there that are now obscuring even more the previously foggy line (that we pretend is absolute in definition) of the employee-employer relationship even further.

The government doesn't know what to do with these services; the US Department of Labor recently issued a memorandum declaring that it is the "dependency" of the relationship that determines contractor versus employer status.

Uber got slapped by the California Department of Labor recently for misclassifying those who perform the job of transporting customers.

There are many more examples of lawsuits, claims, complaints, penalties, audits, etc. against all of these new shared economy services ... and they won't stop soon.

That's because we have two classes of employment relationship: contractor and employee.

In the eyes of the law there aren't any others.

The employee is deemed to be dependent on the employer. The contractor is deemed to be independent of the employer. And never shall the two meet, according to the law. Despite the law's tendency towards obfuscation, at least with regards to employment status the law seeks a clear dividing line.

But technology, as The Law has learned many, many times in the past, doesn't care. The value of the shared economy is a trend that cannot be stopped; not by lawsuits, not by audits, not by penalties, not by anything.

Because people want to engage in efficient, profitable relationships regardless of the constrictions mandated by those who dictate social conformance.

Which is why we need to stop thinking that there are only two possible employment relationships.

The times now dictate that we have a third possible employment relationship: the Dependent Contractor as my law school roommate, ET, coined it.

The DC is going to be someone, like an Uber driver, who desires to work on his own, call his own hours, determine when he is on the clock and off, pays his own expenses, uses his own tools - but derives a specified contractual amount for his services and is clearly dependent on that relationship for economic benefit.

The employer might dictate where those services are going to be provided; might dictate exactly HOW those services will be delivered; may even dictate detailed control over dress, customer interaction, etc. In other words, may exert sufficient control over the DC that a court would otherwise find an employee-employer relationship.

But what if we created, legislatively, a sector for the DC to live in? What if there were specified legal requirements for determining DC status, that everyone could understand and follow?

For instance, for workers' compensation, the employer could require the DC to have his own coverage, but since the DC is small, the employer would create a pool into which the DC pays to cover his own on-the-job injuries.

The same could be done for liability insurance or any other sort of risk.

And what about taxes? Who pays for what and when could be ironed out so the government doesn't lose out on the deal.

One of the big issues with the DC is that there aren't any rules yet. Everyone is winging it. And the problem with that is that the employer in such relationships has the upper hand because the employer dictates the terms of the contractual relationship (which is why they get into trouble in the first place with those who abhor intrusion into the traditional relationship).

It seems to me that the shared economy will only get bigger, and at a much faster pace, than we can anticipate - that's the march of the Information Revolution that we are just at the beginning of. We may as well be prepared for it legally.

This has been done before, by the way, for all you naysayers: why do you think Limited Liability Companies were created? Because traditional corporate structure wasn't sufficient to enable evolved business relationships - bottom line.

If Silicone Valley wants to expedite the shared economy then its lobbyists need to get to work drafting and getting sponsors for legislation that enables the Dependent Contractor. The insurance community will love it - another product (or suite or products) to sell. The formerly un/under-employed will love it because they'll have another way to pay the gas bill at the end of the month. Employers will love it because there will be some certainty in their future business lives. And consumers make out the best of all of them because these efficiencies of scale mean better value.

So, for all of you who are having a tough time dealing with whether or not an Uber driver should be covered by work comp, etc., quit your whining and do something about it - get laws passed that create the Dependent Contractor status and let's move on with this revolution, because the revolution isn't going to wait for the law.

Frictional Costs

Friction is the force resisting the relative motion of surfaces sliding against each other.

The byproduct of friction is thermal energy, and that can result in wear, which consequently may lead to performance degradation and/or damage to components.

It should be noted that friction is not a fundamental force - which means that it is reducible to more basic interactions.

We talk all the time about "friction" in workers' compensation, and generally I think most people tend to refer to various processes in workers' compensation as being friction.

There are processes that get in the way of the delivery of medical treatment - this is often deemed frictional.

There are processes that get in the way of paying bills that are seen as contributing friction to the system.

The government may introduce friction through various compliance programs.

Those are just examples. There are many other frictional details.

In workers' compensation we usually refer to friction in the delivery of benefits to the injured worker. These are costs that are not direct benefits to the injured worker.

Industry statistics reflect that the friction costs of work comp is at, or above, 40%.

An insurance company's frictional costs include adjusters, attorney fees, rent, overhead, etc. It includes external costs like broker’s commissions, marketing, fraud, etc.
In other words, it takes 40% of all costs to deliver benefits.

Compared to other delivery systems this is appalling.

Medicare claims a 3% delivery cost. Its worst detractors claim 8%. Even with $712 million in a single fraud bust Medicare's delivery costs are significantly lower than workers' compensation.

But we're just looking at direct frictional costs. Remember that friction is not a fundamental force, so it can be broken down into many other basic interactions, and there is another kind of frictional cost that is greater.

It is the Friction that arises from the inefficiencies of the system and that friction is the result of misdirected motivations unintentionally arising out of unchecked legal and regulatory mandates.

For instance, claims payers use Utilization Review and Independent Medical Review as a legal cudgel. No one can blame them, they are just doing what the system tells them they can and should do (e.g. in California UR is "mandatory"). Consequently medical providers don't want to do their job: Why spend two hours writing a ‘medical necessity’ report when they stand a poor chance of authorization? Even if they got authorization, the fee would be less than reasonable for keeping a medical practice open.

The first frictional cost places a direct burden on the employer and an indirect cost on the consumer. Imagine if that could be reeled in, and indeed these costs are under constant scrutiny.

But this first set of costs are a consequence of those motivations because to perform the operational duties of claims management according to the law there are adjusters, lawyers, executives, buildings, phones, paper, etc. - all first tier frictional costs.

The second tier of frictional cost has greater impact because it affects the bigger workers' compensation population: the injured worker and his or her employer. 

Delay and deny to an injured worker that needs knee surgery causes both financial and physical suffering. Even if the procedure is authorized six weeks later, imagine the physical and mental pain, and delayed recovery.

The employer suffers as well. It's no secret that the bulk of litigated claims is caused by poor claims handling, largely the product of poor communication. We know a litigated claim costs upwards of ten times the normal indemnity claim. Those costs are passed on to the employer in the form of a higher X-MOD which leads to higher premiums.

Very efficient claims payers have very little friction. Their coefficient of friction (if I had a mathematical brain I would have some cool algorithmic equation here) is very low, ergo their costs are very low, and their productivity is very high.

Poor claims systems have lots of heat. They get audited by the state. They face civil actions for bad faith. They have high employee turnover.

And they damage the basic components of the workers' compensation engine.

Friction is the greatest enemy of an efficient work comp system. Lubrication reduces friction. It must be applied liberally and early in the combustion cycle.

Mid-Year Party

The Workers' Compensation Insurance Rating Bureau's Governing Committee yesterday recommended a mid-year rating decrease that amount to 10.2% from the advisory rate by the Insurance Department just last year.

The recommendation is 11.2% lower than the $2.77 the WCIRB suggested in its annual filing submitted in August and 5% less than the industry average filed pure premium rate.

The decrease comes as the California State Supreme Court denied review of the so called Dubon II decision.

Dubon has been an instrumental case in the cost of system administration - the first Dubon case (same parties) out of the Workers' Compensation Appeals Board was widely viewed as opening up huge holes in SB 863's independent medical review process.

Dubon II, which was a reconsideration by the WCAB of its original opinion with a new board member, closed that gap.

Jan Frank, president and chief executive officer of Pacific Compensation Insurance Co., was the only WCIRB member to vote against the recommendation for a rate decrease, believing it was premature since all of the 2014 data has not been fully vetted.

Specifically Frank is still concerned about allocated loss adjustment expenses - containment costs that are directly attributable to specific cases.

Average allocated loss-adjustment expense per indemnity claim increased 12.1% in 2014 to $836 from $790, in contrast to the bureau's projected 2% decrease.

A discrepancy exists between California carriers and national firms in ALAE. California carriers are reporting unallocated loss expenses accounting for about 15% of losses, while the national carriers are about 7%.

So Frank may have a point.

And the WorkCompCentral story about the Governing Committee's meeting indicates that Frank's consternation was shared by her fellow board members, but they still went with a decrease.

The WCIRB doesn't have ALAE for 2014 figured out yet. And national carriers may not segregate ALAE against their different states.

But in the debate about the rate decrease, Dubon II factored prominently.

WCIRB Executive Vice President and Chief Actuary Dave Bellusci had said earlier that high allocated loss-adjustment expenses could be a result of applicants' attorneys simultaneously filing for an expedited hearing while also submitting an application for the independent medical-review process created by SB 863.

Bellusci also said that Dubon II likely put an end to that. The Supreme Court's refusal to review that case should now cement that opinion and we'll find out soon enough if Bellusci was correct in his assumption.

So another historic moment in California workers' compensation - the real test is yet to come: whether employers feel the ease in rates, and whether injured workers actually get taken care of satisfactorily in light of all of these changes.

Bragging Rights

"The fish REALLY was THAT big!"

In perhaps the biggest news of the year in California workers' compensation is the real possibility that the Workers' Compensation Insurance Rating Bureau may ultimately recommend a near double digit mid-year rate decrease.

If this occurs this would be the first mid-year filing since 2012 and the first recommended decrease since 2007.

In 2012, the WCIRB recommended a 9.1% increase in the advisory pure premium rates effective July 1.

In 2007, the Rating Bureau recommended an 11.3% rate reduction in the middle of the year.

Mid-year filings are important to the insurance industry because they have been a consistent barometer of where the market is going. In most years, when the WCIRB submitted a mid-year filing the recommended change has been close to what gets recommended in the WCIRB's subsequent annual filing.

What's holding up any recommendation at this point is finalization by actuaries of certain loss adjustment expenses.

Giovanni A. Muzzarelli, a senior casualty actuary for the Insurance Department, told WorkCompCentral Monday the loss-adjustment expense methodology pointed to an approximate 5% increase in those costs.

But taken against the 13% decrease indicated by trends on benefit costs, and accounting for the fact that loss adjustment expenses are not a direct one-to-one offset against benefit trends, "it sounds like it's ending up minus 10-ish," Muzzarelli said.

Dave Bellusci, WCIRB executive vice president and chief actuary, would not speculate on how the Governing Committee would actually vote; a vote on whether to submit a mid-year filing for 2015 when members meet today at 9:30 a.m. in Oakland, CA.

So far, here's what the numbers are reflecting:

Allocated loss-adjustment expenses, costs that can be attributed to a specific claim, increased 12.1% from 2013 to 2014.

In 2014, carriers paid $886 in ALAE per indemnity claim at the 12-month valuation point, up from $790 in 2013. The WCIRB speculates that this increase experience is related to the Workers' Compensation Appeals Board decision in Dubon I, which provided an invalidation path on independent medical reviews. Dubon II closed that hole, but issued too late in 2014 to affect the numbers.

"In addition to IMR, we saw a big spike in expedited hearings and prior to Dubon II, there were challenges to the expedited hearing," Bellusci said. "So you had this dual-track, you had to go to IMR, but you're also paying lawyers to attend the expedited hearing."
The Rating Bureau is projecting from 2013 to 2014, estimated ultimate ALAE per indemnity claim will increase 12.3%, following a 5.7% increase from 2012 to 2013.

The WCIRB is projecting the ultimate ALAE per indemnity claim will account for 19.6% of losses for policies incepting on or after July 1, 2015. The Jan. 1, 2015, pure premium rate filing projected an ALAE-to-loss ratio of 15.4%.

Unallocated expenses, those costs that are not directly attributable to specific claims, such as office rent and overhead, is now projected to be 6.5% of losses for policies incepting July 1, 2015, compared to the 5.5% ratio projected in the Jan. 1 filing.

Paid medical cost containment per open indemnity claim increased 4.7% in 2013 to $1,019 from $973 in 2012, consistent with the Rating Bureau's severity trend that assumes a 5% annual increase.

Of course, California is an open market, and carriers can rate as they please, and rates don't necessarily translate to net paid premium, which has a host of other factors more personal to an employer's actual experience.

But this news certainly gives SB 863 proponents something to brag about.

Buffalos in Illinois

My daughter and I flew N6641M to Catalina Island yesterday.

Catalina/Avalon airport is 24 miles as the Bonanza flies from Los Angeles Harbor and is, I think, one of those magical places that few ever get to experience.

My daughter was excited to see a few of the famous Catalina buffalo. She asked the airport manager on duty when we checked in if there were any around.

"There were quite a few roaming near the airport yesterday," he said. So we paid our fees and hiked the Airport Soapstone loop - a short 2.3 mile walk without a whole lot of elevation change.

The airport is at 1,600 feet above mean sea level, so the vistas are spectacular, and the nearly unspoiled environment served up red tailed hawks feeding, wild flowers blooming, and a soapstone quarry.

But no buffalos. There was plenty of buffalo evidence and a couple were large enough for discus throws, which of course was tempting, except for the relative freshness of the discs.

In workers' compensation several states serve up more buffalo discs than others.

**************

Illinois is the one state that has a workers' compensation system as much maligned as California's.

And like California, political attempts to "reform" it focus on costs arising out of the symptoms rather than the underlying "disease" that gives rise to the symptoms.

Newly-elected Republican Gov. Bruce Rauner made workers' compensation reform a center-piece of his campaign, albeit with little detail, but his fellow Republicans in the legislature have some ideas.

In search of buffalo.

A legislative package, filed by Sen. Kyle McCarter, R-Decatur and Rep. Dwight Kay, R-Edwardsville, would, among other things, tighten the rules governing compensation for travel-related accidents, place a 500-week limit on cumulative awards for partial disabilities, reclassify shoulder and hip injuries and define the term "injury" so that claimants would have to prove they are medically impaired to "a reasonable degree of medical certainty, based on the medical findings."

The new definitions are included in Senate Bill 770 and its companion, House Bill 2421, and some companion bills (see below).

Supporters of these bills refer to them as the "causation" bills because the bills try to more tightly define what a work injury is by calling an "accident" an "occurrence arising out of the employment, resulting from a risk incident to the employment, and in the course of employment at a time and place and under circumstances reasonably required by the employment."

SB 770 and HB 2421 also would require workers to show that an "accidental compensable injury" was a major contributing cause of the injury – meaning it was more than 50% responsible for the injury compared to all other causes combined for which treatment and benefits are sought.

The two bills also provide that injuries would be deemed to include the aggravation of a preexisting condition only for as long as the aggravation continues to be the contributing cause of the disability.

Also included in the Kay/McCarty package are:

SB 769 and HB 2419 , which covers instances in which an employee is working for multiple employers and the employers named as a respondent in the claim is aware of the worker's other jobs. Under the bills, the worker's wages from all of the jobs would be considered as being earned from the employer deemed liable for the injury.

SB 771 and HB 2420 would bar temporary partial disability benefits to workers discharged for cause. Claimants would be entitled to a hearing to restore benefits before the Illinois Workers' Compensation Commission and would receive retroactive benefits if the commission rules that worker was not fired for cause. "Discharge for cause" is defined as a discharge resulting from an employee's voluntary violation of a rule or policy not caused by his or her disability.

SB 772 and HB 2422 would limit the maximum cumulative compensation for workers receiving partial disability to 500 weeks. Awards for partial disability would be deducted from any award for a subsequent injury to the same portion of the body. In addition, injuries to the shoulder would be considered injuries to part of the arm and injuries to the hip would be considered injuries to part of the leg.

Seems to me that these bills would simply invite a large dosage of litigation to define what the definitions actually mean when applied to real live facts of a case.

But this is politics, and the point of politics is to propose something that might be distasteful to some in order to get an advantage on something else that may or may not be related.

And with Democrats solidly holding majorities in Illinois' Senate and House, Republican's know they have an uphill battle if they don't compromise on some other topic.

The opinion from business groups is that Rauner may offer an increase in the state's minimum wage as a bargaining chip to pass workers' compensation legislation. Rauner also announced a budget Wednesday that calls for cutting state spending by $6.7 billion, which also may enter into the political debate over business reforms according to sources interviewed by WorkCompCentral.

And we also know that what gets introduced into a legislative session is far different than what ultimately makes it to the governor's desk, if at all. Similar legislation has failed to clear the General Assembly since 2011.

**************

We didn't see any buffalo on our hike and I didn't toss any discs.

So my daughter and I lunched at the DC-3 restaurant at the airport.

We both ordered buffalo burgers.

They were good.

Somewhere In Between

What's odd about being on the inside of an industry is that the messages we receive about how we're doing don't align well with the perceptions being voiced by the injured worker and employer communities, particularly in California.

This was highlighted at this past Division of Workers' Compensation Educational Conference in Los Angeles, which ended yesterday.

Here's what we're hearing from inside the industry based on the presentations at the DWC Conference:

1) Independent Medical Review is starting to work;
2) Rates are going up but not as fast as they otherwise would;
3) Continuous trauma claims are alarming and tied to litigation;
4) Medical fraud is under-appreciated and is a big cost driver;
5) Filing fees and Independent Bill Review have decimated the cost of liens.

IMR filings have stabilized, according to Robert Nydam, a project manager for Maximus, the IMR contractor. Though applications filed each month has been around 20,000, the eligible number is about 12,000. The balance were filed late, were duplicates or simply weren't eligible for the IMR process.

Workers’ Compensation Insurance Rating Bureau data shows the average charged rates for California peaked at $6.29 per $100 of payroll for the second half of 2003. Average charged rates dropped to $2.10 by 2009, but since then have been increasing steadily, and the average charged rate through the first three months of 2014 was $2.97.

Carrier-reported written premium dropped from $23.5 billion in 2004 to $8.8 billion in 2009, according to WCIRB reports, but has been edging up ever since. Written premium increased to $14.8 billion in 2013 and $16 billion for 2014. Dave Bellusci, WCIRB executive vice president and chief actuary, said the pattern of increases will likely continue this year.

Both David Lanier, California Labor Secretary, and Donald Marshall, vice president and national director of the anti-fraud program for Zenith Insurance Co. and chairman of the Fraud Assessment Commission, said that medical fraud is the big cost driver.

Perhaps these views were fortified more recently with the spinal implant cases involving the Drobot family and related medical entities, which were concentrated in the Los Angeles area, which also accounts for a disproportionate amount of claims, particularly CT claims.

Bellusci said WCIRB research shows that about 80% of CT cases involved attorney representation, 25% include an injury to a specific body part, two-thirds of claims were initially denied and 41% were filed post-termination.

More pointedly though, in 2005, cumulative trauma accounted for 6.8 out of every 100 indemnity claims filed in Los Angeles, 5.9 out of every 100 indemnity claims filed in the San Francisco Bay Area and 4.3 out of every 100 indemnity claims filed in the rest of the state.

As of 2013, 12.5% of indemnity claims in Los Angeles were for cumulative trauma, compared to 7.8% in San Francisco and 6% in the rest of the state. In 2003, cumulative trauma claims accounted for about 7.7% of permanent disability cases. As of 2013, they accounted for 13.4% of PD claims.
“There’s definitely a picture of these claims,” Bellusci said. “They’re typically represented, often denied, often two insurers, specific injuries, multiple body parts and many of them are filed after termination. And most of them are coming from right here in the Los Angeles basin.”

The WCIRB projected the $150 filing fee, $100 activation fee and new statutes of limitations for filing liens would cut filings by 40% and save about $480 million a year, but WCIRB's data shows lien filings are down nearly 60%, so projected savings attributable to the lien provisions was revised to $690 million.

Compare that picture to the anecdotal view from a couple of system physicians

Temperature rising?

.

A physician who goes by the pseudonym "Soothsayer" commented: "Many of us are about to abandon treatment. When compared to private patients, WC treatment is so difficult to obtain, that it is laughable, but not really funny. OK, we know there was "fraud". But we can control this in treatment schedules. We have limited PT/OT/Chiro. It is not worth dispensing meds in house. MRIs/ EMGs/ PT are corralled into privately contracted deals, by the carriers. Docs are getting prosecuted for dispensing compounds. We wait months for UR/IMR to ok any of the above. Yes, there were a few bad guys, but why do the rest of us and our patients have to suffer? You can bet the next attack is on CTs. They are being abused by the applicant attorneys, so it will be no surprise when the ax falls. Then there will be crying "woe is me" by these attorneys who have brought this on. No, things are not getting better for anyone except the carriers."

And in a LinkedIn post, IMR physician Tony Kim says: "CA WC is like the ghetto of the healthcare. There aren't any good doctors left. Only people that survived, because things were so harsh where crooks and the insurance companies are just playing the chase game one after another."

So what's the BIG PICTURE? Data suggests the system is "working." Anecdotes indicate there's a big gap in the reality perception.

The truth is probably somewhere in between.

Vapor Ware

In insurance parlance this is what's called a "hard market" in California workers' compensation underwriting.

That means that prices are going up, and not by piddly amounts.

After Insurance Commissioner Dave Jones approved a 2.2% increase to the advisory pure premium rate Nov. 13, eighty-seven carriers in November and December filed revised pure premium rates reporting an average 2.26% increase since Jones adopted an advisory rate of $2.74 per $100 of payroll.

The State Compensation Insurance Fund weighed in yesterday with an average increase of 9% on policies incepting or renewing on or after April 1.

Source: WCIRB

This of course doesn't mean that everyone's bill is going up 9%, it just an average. Some employers with good records, active risk management, and who qualify for tiered rating may still see big savings. Brokers tell WorkCompCentral that for employers with good records and which qualify for various discounts, the State Fund is very competitive with other carriers, and sometimes is the low price leader.

The State Fund blames the average increase on the Los Angeles area, and uses geographical rating to isolate risks in those zip codes.

"The reasons have to do with the experience in Los Angeles, the frequency increase and increased litigation rates on those claims," Jennifer Vargen, executive vice president of public affairs for State Fund, told WorkCompCentral.

The Workers' Compensation Insurance Rating Bureau reported last month that the state's claims experience has increased 8% in California since 2012, while it declined 8.1% among states that report data to the National Council on Compensation Insurance.

Claims frequency in an area that includes Los Angeles, Orange, Ventura, San Bernardino and Riverside counties, which accounts for about 45% of insured payroll in the state, increased a combined 9.4% in the area in 2012 and 2013, while it decreased by 2.7% in all other parts of the state.

So employers in those geographic zones will face a 15% factor to increase premiums, while the factor applied to policies for other employers in Southern California will increase to about 10%.

There are of course all sorts of specious reasons why the insurance market isn't responding to the landmark "reform" bill of SB 863, which had been variously projected to produce a net savings after all was said and done of about a half billion dollars.

Source: WCIRB

But just because there are savings in the system (and at this time there does not appear to be any net savings from SB 863 unless you're a self-insured employer) doesn't mean that employers will feel less pain when they get the bill.

There's an intermediary between the law and the premium notice - and that's the insurance company, a business that is tasked with the job of making money for its shareholders (or in the case of The State Fund, keeping financially strong and returning some of the excess to its policyholders in the form of dividends).

A couple of years of historically low interest rates means that the carrier's investments aren't returning the cash generally anticipated. And as a competitive industry measured by Wall Street the line isn't very attractive.

Source: WCIRB

But the allure of 25% of the nation's total workers' compensation written premium, and the entree that provides to all of the more profitable lines of business for nationally based carriers, means that the fertility of almost 19 million insurable employees is ripe for sowing.

At least as long as the business community is willing to stick around and keep those people working.

In the meantime, SB 863 continues to be unimpressive in terms of overall system performance. Yep, lien filings are down. Disability rates are up.

But medical delivery seems stifled, friction points have increased, and there is no clear indication that the system really is better off than before.

Carriers aren't going to abandon California. The state is too rich.

But if SB 863 were a marketing campaign it would be derided as "vapor ware." There's still time, for sure, but these days patience wears thin a lot more quickly than it used to.

************EDIT***********

The following response was emailed to me by Mark Gerlach, a consultant to the California Applicants' Attorneys Association:

David,

I must admit I am a little confused by your comment that SB 863 should be derided as "vapor ware."  It is clear that expected savings from the introduction of IMR have not been realized, but virtually every other feature of SB 863 is performing either as expected, or better than expected from the employers' standpoint.

Look at the latest cost monitoring report by the WCIRB, as contained in the presentation materials for the December 3, 2014 Actuarial Committee meeting (available on the WCIRB website).  In the "Indemnity Reform" table, the changes to the PD benefit levels and replacement of the FEC factor are coming in as expected, as is the change in claim severity.  The only blemish on this "Indemnity Reform" side is that claim frequency is up more than expected, but there is an indication that this frequency increase is due to other factors such as the economic recovery and the increase in employment.  It should also be noted that the 2013/14 frequency increase is much smaller than the previous two years, less than 1%, so it is possible the recent uptick in frequency was a short-term problem.

Looking at the "Medical and LAE Reforms" the lien changes -- which account for the single largest savings in SB 863 -- are now estimated to produce savings that are actually $200 million higher than the initial projection.  The initial savings estimates of about $100 million each for elimination of the separate fee for surgical hardware and revision of the ASC fee schedule are coming in as expected, and initial evidence indicates the savings from MPN strengthening are also on target.  Additionally, the data show that introduction of the RBRVS-based physician fee schedule is not going to raise costs as much as initially projected, and that medical severities are actually declining, rather than increasing as initially projected.

Thus, the only fly in the ointment is that the projected savings from the introduction of IMR are not occurring.  It is important to note, however, that even with this negative factor, the WCIRB's estimate of the overall impact of SB 863 remains unchanged -- specifically that it will result in overall savings of around $200 million.

With the WCIRB documenting changes that are saving almost a billion dollars, and confirming its initial estimate that there will be a net impact of $200 million in savings, it hardly seems appropriate to deride SB 863 as "vapor ware."  The real issue is why isn't IMR achieving any savings? 

Simply put, because IMR addresses the wrong problem.  The issue shouldn't be how to efficiently resolve medical disputes, it should be how to efficiently provide appropriate medical treatment without so many disputes.  Our system now heavily regulates how a doctor makes a request for treatment, and the new IMR system heavily regulates how a dispute over that treatment request is resolved.  But the UR process between those two steps is basically a free for all. 

Take the Dubon case as a good example of this problem.  Whatever one thinks of the Board's decisions, there should be general agreement that the fundamental problem in that case was that the UR physician didn't review all relevant medical records.  I think most will agree that if the UR physician doesn't have or doesn't review all of the relevant records, the UR determination is likely to be wrong.  While there are important issues being decided in Dubon, wouldn't it have been better if the UR physician had looked at all of the medical evidence before making a faulty determination that is now taking on a life of its own.  Instead of spending a lot of effort and money in litigating disputes over UR, wouldn't it be more effective for all parties to find a way to make the treatment authorization process work without so many disputes? 

Bottom line, most of the changes made by SB 863 are turning out as expected, and based on the most current evaluation it looks like there will be a net savings of about $200 million for employers.  But as evidenced by your column,  the problems with IMR are so overshadowing the other changes that most observers are unaware that most of SB 863 is performing as expected.  This is not to dispute that the IMR issue is important; but the "IMR problem," in my opinion, will only be solved when UR is viewed not simply as a means to deny treatment but as a means to make sure workers have prompt access to appropriate treatment.

Sorry to send this as an email; your site wouldn't accept it as a comment because it is too lengthy.

Mark Gerlach


************MY REPLY***********

Mark - I thought about this more (of course after I wrote this morning's blog and cleared my head with caffeine!) - I think the confusion here is what typically confuses the workers' compensation industry: subrogation.

You see, we're so accustomed to synonymously equating "employer" with "carrier" because the carrier takes over, and stands in the shoes of, the employer once a claim is presented.

And yes, it is true that SB 863 is reaping savings ... for insurance companies, not employers.

What you are citing is carrier savings.

As is obvious with current rate filings, those savings are not being passed on to the paying employers.

Self-insured/administered employers ARE seeing direct SB 863 savings. They represent a very, very small piece of the pie.

TPA administered self-insureds are seeing savings too, but not to the extent their self-administered brethren are, because there are profitable friction points (e.g. UR, bill review, etc.) built into those TPA contracts.

But the vast majority of employers in this state, those that rely on insurance to cover their work comp risks, are not seeing any savings, and as is clear by the filings, are in fact seeing increases of between 2.5 and 10%.

So, while you make some very good arguments, they are characterized incorrectly. Yes, SB 863 is generating some savings (* and not nearly as much as was promised) but it's for the carriers, not the employers.

I stand by my opinion!

Or, as a good friend of mine likes to remind me: That's my opinion, ought to be yours!