Vermont Challenges Status Quo

Vermont on Thursday became the first state in the nation to attempt a sole source option for all medical care, likely inclusive of workers' compensation.

Gov. Pete Shumlin last Thursday signed the state's major health care reform bill into law.

House Bill 202 allows a five-member governing board for a new health insurance exchange called Green Mountain Care to include workers' compensation in the plan but requires that Vermont Labor Commissioner Annie Noonan study the issue and report back to Shumlin and lawmakers next January before any action is taken.

The new system will launch in 2014 or 2017, depending on whether Congress grants waivers from ERISA.

Shumlin said the Green Mountain Care governing board will be appointed and in place by this October. He said the board will begin by working with health care providers to move away from fee-for-service medicine.

This certainly is an historic moment that, in my view, is as fundamental a change in social philosophy and entitlement mentality as the introduction of workers' compensation was 100 years ago.

Kudos to Vermont for having the chutzpah to challenge the status quo. They might not have all the answers, but at least they're willing to try.

My prediction - this is just the start of a tidal wave of health care "reform" into which workers' compensation will be swept, and is the prime moment social reformists seek in changing the mentality of entitlement reform and a revised reward system.

Illinois 'Nuclear Option' - Politics or Common Sense

Illinois is in the throes of "reform" politics, with the deadline for moving a bill to the Governor's desk fast approaching (May 31).

In the background is Rep. John Bradley's (D-Marion) amendments to SB 1933 that would repeal the Workers’ Compensation Act and the Workers’ Occupational Diseases Act. The bill was originally filed by Sen. Jacqueline Collins, D-Chicago, and as passed by the Senate, dealt with unclaimed property and wages.

The amended legislation, titled, the “Workers’ Compensation and Workers’ Occupational Diseases Transfer and Transition Act,” would divest the Workers’ Compensation Commission of jurisdiction over all actions over which it has jurisdiction on Dec. 31, 2011, and would assign those actions to the circuit courts.

In the meantime, "reform" politics is stalled over the standard that determines compensability. Employer groups want a more strict standard than “injuries must be during the course of employment”.

SB 1933 has a reasonable chance of getting to the Governor's desk for signature if the Illinois Legislature doesn't compromise - in that case employer groups may wish they had the less strict standard of compensability.

The Illinois employer lobby needs to decide if it wants to risk civil liability in exchange for the chance to start with a clean legislative slate. Sounds like quite a gamble since their reason for seeking "reform" was due to the high cost of work comp.

Controlling Costs by Controlling Expectations

A panel at the Northern California Workers' Compensation Forum yesterday (see WorkCompCentral News story "Panelists Agree on Controlling Costs by Controlling Docs" agreed that the use of medical networks and other tools to control doctors helps in controlling overall work comp claim costs. And at least one panelist argued that utilization review has done more to increase costs than control them.

But one main ingredient to controlling costs seems to be always missing from the conversation - controlling the expectations of the injured worker.

I've always been impressed with a statement by President Obama’s then budget director, Peter Orszag, addressing lawmakers in economic meeting on 2/23/09, “To my fellow budget hawks in this room and in the rest of the country, let me be very clear: Health care reform is entitlement reform.”

Indeed, I'd argue accordingly that the way to control medical costs in workers' compensation is to reform the expectations of the injured worker - entitlement reform.

Here is a recent example of controlling costs, albeit in the general health scenario. My mother-in-law, 82 years old, fell when she got dizzy because her blood pressure was too low on account of overzealous medication. She received a nasty gash on her arm. When my wife and I saw her she appeared to be fine - yes, big cut on her forearm but otherwise no signs of any other trauma or cause for concern.

Mom, though, likes attention and was pleased to receive a plethora of tests from an EKG to a scan of her brain from doctors that were more than willing to run up the diagnostic check list due to Mom's history of injury (she got dizzy and fell) that had nothing to do with the real emergency, ergo a cut on the arm.

Yep, the doctors would claim that they wanted to take all necessary precautions to ensure nothing was missed during this visit, and of course nothing was missed - there were no anomalies found after 6 hours and thousands of dollars of diagnostics. 

Yet it was quite obvious just from a physical inspection and talking with my mother-in-law that there was nothing wrong other than the cut on her arm.

Had Mom been told from the outset by doctors a) without a profit motive and b) unafraid of the minuscule possibility of tort liability (California has a high threshold before a doc can be sued) that physically she looked okay, mentally she sounded okay, and had been given a truly informed option on all these tests (i.e. they could be performed but likely to turn up nothing because she looked and sounded fine), she could have gotten out of ER in just an hour and saved her medical insurance company thousands of dollars.

The same goes in work comp. Doctors are too often quite eager to order tests, perform surgery, and conduct expensive medicine, when a good solid discussion of the non-medical alternatives would do more to help the injured worker than  all of the medicine in the world.

Control the expectations of the injured worker and you control medical costs. 

Rewarding Bad Behavior versus Social Engineering

California Commission on Health, Safety & Workers' Compensation (CHSWC) researcher, Lach Taylor, was on a panel of experts yesterday at the Northern California Workers' Comp Forum at the San Francisco Airport Marriott addressing what could be done to turn things around at the Division of Workers' Compensation.

Taylor said the problems within the workers' compensation system are the consequence of legislative and regulatory actions that reward bad actors. 

"If we see a behavior that we don't like, it's because we've created a system that rewards that behavior. Whether it be underpaying or over-billing, denying needed treatment or rendering unnecessary treatment, it's all because we've created a system that is paying someone and incentivizing them to do that."

Taylor has been a proponent of filing fees for liens (in California a provider can "lien" a case when any part of a payment has been disputed or not paid and thus the "lien claimant" becomes empowered with independent judicial rights) - a concept with which I disagree - but his overall reflection upon cause and effect in workers' compensation is dead on.

In California the workers' compensation system has become so complex and convoluted that anyone seeking an unfair advantage or wishing to abuse the system can do so with virtual impunity. Sure there are some penalties, but too many - injured workers, employers, carriers, medical vendors, etc. - take advantage of the numerous loopholes to game the system.

"Reform" doesn't work because the political machine waters down any true overhaul, and the piecemeal style of legislative corrective action creates the aforementioned loopholes as a product of unintended consequences.

For instance, a bill currently working through the California Legislature would prohibit filing liens more than 18 months after the date of injury. SB 863 by Sen. Ted Lieu, D-Los Angeles, would also require that all liens be in writing.

Liens are already required to be in writing by regulation so this provision would add nothing. Prohibiting liens 18 months post injury means all vendors will pile liens on to a case prior to expiration of the limitation date, exacerbating the "lien problem". And what happens with provider bills for a long term claim that goes beyond 18  months? What then prevents carriers from denying payment since there would be no alternative enforceable rights by the provider?

My wish list - proposed legislative activity should be vetted by social engineers to identify unintended consequences that end up rewarding bad behavior before going to committee. Maybe that way we could identify bad policy before it becomes law.

What Does the 800 Pound Gorilla Really Want?

It was just yesterday that I opined on the national influence of state work comp systems.

Then this morning WorkCompCentral News reports that California's State Compensation Insurance Fund ("The State Fund") is seeking a legislative remedy to a little issue that has followed The State Fund since inception - what to do with California employers who have employees permanently out of state.

The private carriers are skeptical - The State Fund doesn't pay income taxes and therefore theoretically has an unfair advantage in the free market.

According to The State Fund, though, they have no intention of actually writing out of state business but instead seek to partner with carriers that are licensed in other states to provide coverage for California businesses that have permanent out-of-state workers. The purpose, according the The State Fund, is to make it easier for agents to single source their comp placement for employers.

I should note that WorkCompCentral fits this model - we are a California business, but we have journalists permanently out of state. We thus have different work comp policies through different work comp carriers to cover these workers. Truth be told, it's a pain to manage these policies, but not so onerous that it is excessively time consuming. But confusion does occur when underwriting audits payroll and fails to note the details of where that payroll is located...

I'm on the fence on this one. I don't know the details on how The State Fund intends to market out of state, nor how it would actually partner up with out-of-state carriers: underwriting, marketing, claims - there are many details that could either make or break this deal.

I'm not sure that legislation is actually necessary for this to happen, if in fact The State Fund's true intentions are to partner with out-of-state carriers to make single source agent shopping possible. Why can't they do that now? Isn't this just a marketing effort?

Nevertheless, in this very mobile employment market, just the fact that The State Fund, the largest  single line workers' compensation insurance company in the nation, recognizes that jobs cross state lines is significant.

Workers' compensation is slow to evolve. Usually we deal with "reform" that changes compensability, medical or indemnity issues, but major moves like the one The State Fund is contemplating can either be a game changer, or a non-sequitur. We'll just have to see how this all plays out. The State Fund is the 800 pound gorilla in this industry and has considerable size advantages and its unclear what the carrier really wants.

The National Impact of Comp

Reading this morning's WorkCompCentral News on the conservation of Majestic Insurance in California, and the objections raised by the New York State Workers' Compensation Board (NYSWB) I am reminded of just how interwoven each state's workers' compensation systems are, despite the fact that each state has its own system.

Where carriers span state lines the impact of one financial situation spreads, causing disruption, challenges, and disputes between state agencies.

We saw this quite graphically in the early 2000's when a number of California carriers went under - the ripples of those failures spread across the nation and impacted many markets.

I don't espouse nationalizing workers' compensation - that is a certain recipe to disaster as each state has its own culture, its own needs, its own laws. But state Insurance Departments today have a much different job now than they did when workers' compensation was first introduced.

The financial considerations are much more complex. Holding companies domiciled off shore, public funding coming from the financial markets, broad based property & casualty companies using work comp as loss leaders to gain more profitable business, and a whole host of other complicating factors make the work comp market much more diverse and intricate than originally conceived.

At the same time, this complex structure of the work comp market is good because of the broad spreading of risk. Insurance, at its most basic function, is a risk management tool, and work comp is probably one of the biggest examples of the genius by which spreading the risk should work.

Yes, there are holes and there will be consequences when a financial situation goes awry, such as with Majestic, but think about how much more devastating this situation could become if the risk of one carrier were not so spread out.

It's not ideal, but the system essentially works as designed.

Pre-emption of Federal Law a Safety Mandate

California's 2nd District Court of Appeal, 5th Division, yesterday ruled that the Federal Aviation Administration Authorization Act (FAAAA) does not preempt the California Attorney General from bringing charges against trucking companies that misclassify drivers as contractors under the state's unfair competition laws (WorkCompCentral: State Misclassification Suit against L.A. Trucking Firms May Proceed - 5/20/2011).

This ruling conflicts with an earlier pronouncement by the 6th Division of the 2nd District Court of Appeal that ruled that the state is prohibited from using the unfair competition laws to enforce labor laws and regulations that pertain to an airline or trucking company.

The 5th Division case arose when then Attorney General (now Governor) Jerry Brown sued Alfredo Barajas and Pac Anchor Transportation under the state's unfair competition laws (California Business and Professions Code Section 17200) to enforce employment and labor laws and regulations for misclassification of employees as independent contractors.

The state said Barajas and Pac Anchor gained an unfair advantage because it did not have to provide workers' compensation insurance for its drivers or pay unemployment insurance taxes, pay into the Employment Training Fund or withhold state disability insurance and income taxes, and the 5th Division agreed.

"Where a cause of action is based on allegations of unlawful violations of the state's labor and unemployment insurance laws, we see no reason to find preemption merely because the pleading raised these issues under (unfair competition laws) as opposed to separately stated causes of actions," the court said. "We respectfully disagree with [the 6th Division's] contrary conclusion as to preemption of causes of action under the (unfair competition laws)."

Instead, the appellate court said the state acted to enforce statutory obligations that Baraja and Pac Anchor have as employers, and while there may be a remote effect on prices, routes or services, that is not sufficient to support preemption under any of the federal acts.

This sets up a certain appeal to the California Supreme Court which I hope upholds the 5th Division's interpretation of conflict of laws. While the trucking and transportation industry may not like the result, the safety of the employees in the industry should be the paramount concern. The trucking industry is one of the most costly workers' compensation risks for obvious reasons - it is one of the most dangerous occupations, and allowing a trucking firm to avoid state regulation and taxes just because it operates out of a port gives that firm an unfair competitive advantage against other firms that do not operate under such federal authority.

In the meantime, the issue of trucker misclassification is addressed in a bill introduced by Assembly Speaker John Perez, D-Los Angeles, that is currently up for a third and final reading on the Assembly floor. Under AB 950, all drayage operators, defined as a person who operates a vehicle with a gross weight greater than 33,000 pounds through ports or railyards for the purpose of loading, unloading or transporting cargo, would have to be classified as employees.

OK Comp Reform Intriguing

I'm intrigued with the ongoing workers' compensation "reform" (I usually always put the term "reform" in quotes when referring to work comp legislation intended to make substantive changes because in reality what generally occurs is some tweaking but no real wholesale change of a system) attempt in Oklahoma because of the change in the burden of proof for injured workers to "preponderance of the evidence."

 Most states make benefits available so long as there is "substantial evidence" supporting a finding of AOE/COE.

"Substantial evidence" in general means that regardless of whether there is some "better" evidence, if there is enough to support a finding then it's a winner. It is the equivalent of "some credible evidence" - just enough to find what is proposed.

On the other hand the "preponderance" standard is met if the proposition is more likely to be true than not true. Effectively, the standard is satisfied if there is greater than 50 percent chance that the proposition is true.

In most cases this probably won't make a difference, but in disputed cases this change will increase the amount of litigation just to resolve the base question of compensability. This may or may not be a good thing for OK employers, who have been pushing for this change.

The good thing is that perhaps fewer cases will qualify for work comp, which on its face means lower work comp bills for the employer.

The downside, and there is always a downside, is that while cases linger in the courts on evidentiary hearings relative to compensability, the clock keeps ticking on all other aspects of the claim making it much, much more expensive if the outcome is against the employer.

Going to court with competitive evidence and conflicting conclusions means really knowing the trier of fact, their philosophy on comp, and track record of rulings. Get any of those variables wrong, and the probability of a favorable outcome declines.

If this measure passes ( the Senate unanimously passed SB 878 yesterday and the bill moved to the House and is scheduled for a vote today) you can bet litigation will increase in OK, and some employers won't be happy with their comp bills a few years down the road as their x-mods wreak havoc on base rates due to that one enduring disputed case that didn't come out the way the employer thought it would.

But, on the bright side for my OK bar card holding colleagues, local attorneys who know their judges should do just fine with this "reform."

No Accounting for Wild Fraud Attempts

Who would think that someone would shoot themselves just to collect work comp benefits, especially in a conservative benefit system such as in Florida?

But that's just what a Pensacola, Fla., paramedic has been accused of.

According to the Pensacola News Journal, Brandon Richie, 28, is scheduled to be tried July 18 on charges that he shot himself to collect workers' compensation benefits.

The newspaper said Richie has been charged with workers' compensation fraud and making a false report.

According to the paper, Richie told the Escambia County Sheriff's office he was shot Jan. 28 by a man wearing a lime-green jacket emblazoned with NASCAR-type patches. But the newspaper said Richie admitted in February his wound was self-inflicted and that he made up the story about being shot, according to the sheriff's office.

The desperation of some people to NOT work just alludes my sense of logic...

Brown Budget Reflects DWC Reality

Yesterday I chastised the California Republican budget proposal for messing with employer money by cutting funding for the Division of Workers' Compensation (DWC) even though DWC is completely "user funded" and takes no part of General Fund money.

CA Governor, Jerry Brown, released his budget yesterday and at least his office recognizes that the DWC's money is not the state's money, and that cutting DWC off would in fact be a detriment to the California economy.

Brown budgeted $164.006 million for the DWC during the fiscal year that starts July 1, which is funded by employer assessments. That's up from $160.328 million in the current year.

The budget is here.

 In other California news, we reported this morning that Fitch ratings came out with a report that the combined ratio for carriers in the state is outpacing the rest of the nation by a healthy margin, which of course raises concerns.

But this should not be surprising. California will always be an outlier because its economy and its population are so huge. Since the combined ratio is a very simple gauge of industry health, comprised of incoming premium versus expenses and losses, it is not a truly accurate picture of the health of the industry, but it does raise alarms and is subject to misinterpretation.

The combined ratio is necessarily reflective of a current economy divided by cumulative past claims. It really is a measure of industry cash flow. Since employment is down, premiums are down, but expenses pile up because claims take some time to mature and get through the system.

What is not reflected in the Fitch report is the status of surplus, or cash available after losses and expenses and sitting in investment accounts - throw that number in and you have a different picture. At the NCCI Annual Issues Symposium a few weeks ago, status of surplus in the industry was healthy, meaning that there was sufficient cash available to pay losses and expenses over and above incoming premium.

Nevertheless, combined ratio is a barometer, and what you don't want to see is too many successive years of high combined ratios, especially in an anemic investment environment. I don't have much faith that the employment environment is going to improve any time soon - the California economy is indelibly linked to housing and construction and until the housing market finds its bottom the state will continue to limp along.

Smart carriers have been gradually increasing rates and being disciplined in their underwriting. Short sighted carriers competing solely on pricing will suffer price spikes that will alienate their customers, or worse, may lead to either exiting the state or going under,

CA Republicans - Leave DWC Alone!

California Republicans are proposing a 10% decrease in funding for all state agencies (see WorkCompCentral story this morning, "Republican Budget Proposal Would Cut DWC Funding"), not discriminating against agencies that derive their funding from sources other than the General Fund.

As you likely are aware, the Division  of Workers' Compensation (DWC) is entirely funded by a tax on workers' compensation policies. This is called "user funding" and DWC became completely independent of the General Fund on 1/01/2004.

In other words, DWC contributes nothing, zero, nada, to the state budget deficit. But if the Republicans have their way DWC's funding will be stripped.

DWC is already under politico budget bulls#@t!.

Funding for DWC activity was increased by 17% for 2010, unemployment was hovering near 12%, claims frequency for the first quarter of 2009 was 14.8% less than the first quarter of 2008 and 30% less than its all-time high in 1991 (statistics by the Workers' Compensation Insurance Rating Bureau).

Yet, during this period DWC's "budget" was restricted, with Division work furloughs, staff cuts, hiring freezes and more.

I asked a senior DWC administrator several months ago why this was occurring. In hushed tones so that we could not be overheard this official admitted that it was politics - that the Division needed to look austere just like the other agencies that suck from the General Fund.

The Republicans claim that across the board cuts are necessary to help the state's economy, yet they fail to understand that cutting programs that help employers move cases through the system, thereby minimizing the impact of the experience rating modifier (there by affecting the actual cost of work comp for the employer), HURTS the economy. By removing funding from the DWC, cases stall, and injured workers don't get back to work and this HURTS the economy.

And my biggest beef - IT'S MY DAMN MONEY!! I'm an employer, I pay into the system, those funds are supposed to be dedicated to the administration of workers' compensation, and the state is telling me, a that it really doesn't care that I employ, that I contribute to the economy, that my money is being diverted.

My message to the state's Republicans: leave DWC alone!

For the record, I'm a registered Republican, and damned ashamed at my party.

Plethora of Bills Foretell End of Reform

If there is any doubt why workers' compensation system reforms fail after several years (thereby begetting further "reform") one need only look at some of the aggressive legislative activity that occurs!

The following is a list of activity reported in this morning's WorkCompCentral news that is occurring in California as the deadline for bill submission closes today:

Bills that are up for floor votes:

• AB 211 by Assemblyman Gilbert Cedillo, D-Los Angeles. The measure would require supplemental job displacement vouchers be delivered to injured workers no later than 80 days after the first medical report indicates there will be some degree of permanent partial disability award and the injured worker is permanent and stationary.
• AB 1168 by Assemblyman Richard Pan, D-Natomas, which would order the Division of Workers' Compensation to develop by Jan. 1, 2013, a fee schedule establishing maximum fees paid for services provided by vocational experts. The bill is on the Assembly's consent calendar.
• AB 947 by Solorio would extend the period during which an injured worker can collect temporary disability benefits from 104 weeks to five years when a course of treatment lasts longer than two years.
• AB 783 by Assemblywoman Mary Hayashi, D-Hayward, would add physical therapists to the list of health care workers who can be employees of a professional medical corporation.
• SB 863 by Sen. Ted Lieu, D-Torrance, would require liens be filed in writing and within 18 months of the date medical services were provided.
• SB 684 by Sen. Ellen Corbett, D-San Leandro, would require California law be applied to disputes between employers and insurers.

Bills that are in appropriation committees:

• AB 335 by Assemblyman Jose Solorio, D-Santa Ana, would require the administrative director of the Division of Workers' Compensation to adopt new notices and rules governing how the notices are delivered to employees.
• AB 378 by Solorio would cap reimbursement for compound drugs until the Division of Workers' Compensation adopts a fee schedule that covers compound drugs.
• SB 826 by Sen. Mark Leno, D-San Francisco, would authorize the Division of Workers' Compensation to assess fines against adjusters who don't comply with mandatory reporting requirements.
• SB 127 by Sen. Bill Emmerson, R-Riverside, would require updating Current Procedure Technology (CPT) codes used in the Official Medical Fee Schedule.
• SB 432 by DeLeon, requiring hotels to use fitted sheets and provide housekeepers with long-handled cleaning tools.
• SB 923 by DeLeon, requiring the Division of Workers' Compensation to develop an Official Medical Fee Schedule based on the Resource-Based Relative Value Scale (RBRVS).

Bills that have passed Assembly include:

• AB 228 by Assemblyman Felipe Fuentes, D-Sylman, would exempt State Compensation Insurance Fund employees from hiring freezes, staff cutbacks and furloughs. The Assembly passed the bill off the consent calendar on May 9.
• AB 1263 by Assemblyman Das Williams, D-Santa Barbara, would prohibit State Fund officers and directors from engaging in lobbying or contracting activities for two years after employment with the carrier is terminated. The bill passed on a 74-0 vote on May 5.
• AB 584 by Assemblyman Paul Fong, D-Mountain View, would mandate that a physician conducting utilization review of the proposed treatment for an injured worker be licensed in California. The bill passed April 28 on a 54-22 vote.
• AB 397 by Assemblyman Bill Monning, D-Carmel, would require licensed contractors to provide proof of workers' compensation coverage or a work comp insurance exemption when renewing licenses. The bill passed on a 60-0 vote April 14.
• AB 1155 by Assemblyman Luis Alejo, D-Salinas, would prohibit the use of race, gender and other protected classes when apportioning permanent disability. The bill passed Thursday on a 44-22 vote that split down party lines.

CA WCIRB, Rates, Absurdity

WorkCompCentral reported this morning that the California Department of Insurance (DOI) advised the Workers' Compensation Insurance Rating Bureau (WCIRB) that its proposed "informational filing" for pure premium rates was closer to an interim rate filing and would require a public hearing before disclosure.

The WCIRB wants to inform its member companies, and the public, that rates in the Golden State should go up about 40% after being depressed for years despite rate filings in the past 3 years seeking successive increases - all of which had been denied by the Schwarzenegger Administration led DOI and former Insurance Commissioner Steve Poizner (who ran unsuccessfully for Governor in this last election).

But really folks, does any of this matter? Rate filings are advisory in nature any how ... and with the national combined ratio now running 115%, is it any wonder that rates eventually will head skyward, and rather dramatically?

The DOI in California (and in many states) has become just a political system rather than a regulatory body. The job of the Insurance Commissioner is to get re-elected, not so much to regulate the insurance industry in any responsible manner.

The bottom line is that rates must go up, and are heading up by most responsible and disciplined carriers, though not in the fashion the WCIRB is proposing. Ultimately rates, and premiums, will accelerate because the long tail nature of claims eventually catches up to cash flow from premiums. Unemployment takes an unusually hard toll on work comp carriers as associated payroll, that drives premium income,  is way down.

Though the industry is still showing a good surplus, that can't last long as claims from years past start eroding reserves.

Eventually we will see some meteoric increases in premiums, and perhaps another "reform" agenda?

Carrier RICO Against Employer/Employee New Twist

Usually we hear about insurance companies being sued by either the injured worker, or the employer. WorkCompCentral News this morning though threw an interesting twist to the usual formula with a story about a work comp carrier suing the employer and injured worker under RICO (the Racketeering Influence and Corrupt Organizations Act) alleging a conspiracy to defraud the carrier.

In the unpublished opinion of Virginia Surety Co. v. Macedo, The carrier contends that Macedos Construction Co. of New Jersey, its management and an injured worker conspired to defraud the insurer out of $284,699 in workers' compensation benefits, along with $31,892 in defense costs toward other litigation. By alleging violations of the RICO act, the carrier is able to seek treble damages, which allow a court to triple the amount of compensatory damages. Furthermore, its unjust enrichment allegations allow it to seek interest on the money expended.

The really interesting twist is that Virginia Surety is arguing that the business owners, the Macedo family, attempted to convince an injured worker who was not actually the company's employee to accept workers' compensation benefits obtained through fraud in exchange for dropping his negligence suit against them.

The suit arose when Carlos Peixoto, a Macedos Construction foreman, bought undeveloped residential property with his wife and sought to develop it. Virginia Surety noted that Peixoto was listed as the "contractor" at the home construction project, not Macedo Construction.

The suit alleges Peixoto asked two Macedos employees if they knew of any carpenters to help him build the home. They recommended Manuel Covas and his co-worker, Jose Moreira. In October 2005, Moreira was seriously injured when he fell 25 feet to the ground after scaffolding collapsed. Moreira was hospitalized and has been unable to work since the accident.

Sandra Macedo-Bilynsky, a co-manager at Macedos Construction and Peixoto's sister-in-law, filed workers' compensation and comprehensive general liability policy claims with Virginia Surety, stating that Moreira was a covered employee for the job. Virginia paid him the $284,699 in benefits, and also spent another $31,892 defending Macedos Construction from a negligence suit Moreira filed against the business.

Virginia Surety began to suspect fraud when it noticed that Moreira's negligence suit included a certification stating that he had never worked for Macedos Construction. This led the insurer to file RICO claims, along with a number of wire and mail fraud claims based on New Jersey statutes. It also sought a declaratory judgment voiding and rescinding coverage for the Moreira claims.

Usually the employer argues that the injured worker is NOT an employee or did NOT get hurt at work! Business complains that work comp doesn't work, but when the exclusive remedy provision of the grand bargain weigh in favor of the employer, all of a sudden work comp is desirable.

Free Advertising on WorkCompCentral - Winning!

Everybody likes to win. It's even better when the win is a common win. But it's the best when it's a win, win, win situation!

My sales training guru, Jeffery Gittomer [www.gitomer.com/], discourages blatant sales pitches in marketing material and strongly encourages content that provides value to the reader. Well, I'm going to violate that rule, sort of, by telling you about our new advertising program because I truly believe that this is not just a sales pitch, but is an unbelievable value proposition that will make you a winner, makes WorkCompCentral a winner, and combined elevates our winning to an even higher standard!

I'm talking about our new FREE ADVERTISING program. Wow, FREE advertising! Hold on, skepticism just kicked in - nothing is REALLY free‚ right?

Okay DePaolo, what's the catch?

You're right reader, nothing really is free, but I got your attention!

Here's the basics: you buy a 6 month subscription for someone else, and you get to advertise on WorkCompCentral for no additional charge. The number of impressions allocated to your ad is based upon how many subscriptions you sponsor.

This is why this program is a win, win, win:

First, you really do essentially get free advertising because your only obligation is to buy a subscription for someone else.

Second, what an incredible opportunity for YOU to get in front of YOUR customer or prospect and provide them with VALUE. Can you think of a better way to build that crucial customer relationship? Everyone loves WorkCompCentral but many adjusters, attorneys, administrators and other professionals don't have individual access and must share this great resource with others, which creates access issues. When you give a WorkCompCentral subscription to a customer or prospect you are providing them with access to WorkCompCentral on their own terms - when they want, where they want, how they want!

Third, because the subscription is for 6 months this gives you a reason to contact and be in front of your customer or prospect routinely - every six months. What a great conversation opener and relationship builder!

Fourth, the more subscriptions you sponsor, the more advertising space you get, which means your customers and prospects see your message more often. It is an exponentially growing program of building relationships and getting your message to the people that need to see it!

Fifth, the more subscriptions you sponsor, the more WorkCompCentral grows its user base and usage statistics, which translates to more exposure for you to other new prospects and potential new customers!

All for the price of a six-month individual subscription.

So, as you can see, even though I violated Gittomer's rule in form, the substance of this article is genuinely a value proposition. Please call Christina Childers at 805-484-0333, x. 126 or email her at christina@workcompcentral.com to discuss this great new opportunity and get the details!

A Disability System with a Medical Component? Bad Argument

During one of the sessions at Thursday's NCCI Annual Issues Symposium (AIS) one of the panel presenters opined that work comp can not be part of a single payer/source medical system because work comp is a 'disability system with a medical component'.

I couldn't disagree more.

Medical costs now comprise the majority of every dollar spent on a work comp claim. This is true in every study of work comp costs regardless of which alphabet soup organization published the study.

Further, the thinking that work comp is a disability system is what has gotten this industry into trouble, and in fact may be why medical should be removed from work comp and left with the general health system.

Let's take the base argument that work comp is basically a disability system with a medical component - that right there tells us that medical has no particular reason to be a part of work comp other than the delivery of treatment.

The argument was made that work comp is different because general health just focuses on making the patient better, while work comp is focused on returning the injured worker back to work.

Sounds like an disingenuous argument at best. I frankly don't see the difference. If the patient is better, then the patient should be able to do what the patient did prior to injury, whether it's cooking, cleaning, participating in athletics, or working.

Most states use an edition AMA Guides to regulate the indemnity portion of the the system. The AMA Guides focus on "whole person impairment". Some states modify this impairment to come up with a "disability" (which simply means a measure for indemnity) and some don't. The point is that the standard for "impairment" exists whether one is in the work comp system or not. This point is clear in that the Guides are used for lots of other medical-legal issues other than work comp - e.g. auto accident litigation.

So, saying that work comp is somehow different than general medical because it is a disability system with a medical component does not stand the test of logic. If that were the case then all other tort systems that rely on medical-legal standards should also be separate systems.

State of the Line - "Deteriorating"?

NCCI's CEO, Stephen Klingel, opened up yesterday's Annual Issues Symposium (AIS) by describing the state of of the work comp market as "deteriorating."

That's not what I, and 724 of my colleagues (record attendance) wanted to hear, but it was sobering nevertheless.

The question is - is "deteriorating" worse than last year's "precarious". The balance of the downside and upside as explained by the presenters at the AIS indicated to me that the situation is not dire as the adjective used would have one believe.

First off, while written premiums are near an all time low relative to volume and inflation, the trend was explained as having slowed significantly, if not actually having bottomed out. This is great news for brokers whose compensation is commission based on premiums.

In addition while the combined ratio has climbed dramatically to 115, one has to remember that this number is essentially a cash flow number - thus the combined ratio is reflective of the fact that reduced premiums (due to reduced payrolls) is intersecting with long tail claim elements. Also the data is affected by premium refunds (aka "dividends") because audited payrolls were less than what premiums were based on.

Other positive news was that indemnity claims lowered, and medical costs, though still up, did not increase nearly as much as in the past. Perhaps some state's reforms are actually producing savings on the medical front.

Finally, while the unemployment numbers are still high, new jobs are being added trending towards increasing payroll.

Work comp typically lags the general economy by a couple of years due to the effects of employment. What was reported gives me optimism that we are on the road to overal economic recovery, albeit slowly, and that the industry is relatively healthy.
The positive news was that the industry remains well capitalized, with very healthy surplus (in other words there's plenty of money available to meet claim obligations).

Duncan On Calendar ... Finally!

Yes I know I'm in Florida and at the NCCI Annual Issues Symposium (AIS), but WorkCompCentral News this morning reported that the California State Supreme Court has finally calendared oral arguments in Duncan vs. WCAB.

For those of you outside California, the Duncan case represents a potentially huge cost adjustment factor for employers exposed to life pension or permanent total disability claims originating after January 1, 2004.

The law was part of the "step reform" bill AB 749 and included modifications to Labor Code section 4659, creating a cost of living adjustment (COLA) to life pension or permanent total disability claims. The precise issue is when the COLA starts.

My black letter reading of the section, and the 2nd Appellate Court's reading (from whence the Supreme Court's review originated), is that the COLA adjustment started 1/01/2004, effective 1/01/2005, regardless of date of injury. The business/insurance community argues that the COLA is claim specific and does not start until the January 1st after the date of injury. This can make a huge difference in the starting indemnity rate for qualifying claims.

I believe the Supreme Court will affirm the 2nd DCA's interpretation. The purpose of a COLA is to keep an annuity current with the rate of inflation. Making the COLA effective after the date of injury means that indemnity for future injuries will fail to keep pace with inflation.

The Supreme Court will look to the intent of the legislature in this sloppily written piece of law, and I think the intent of the legislature is evident in Labor Code section 4453, amended by a different bill about the same time as LC 4659.

LC 4453 provides that calculation of average wages for purposes of determining the temporary total disability (TTD) indemnity rate "shall be increased by an amount equal to the percentage increase in the state average weekly wage as compared to the prior year" starting 1/01/2007. Since then the plaintiff in the Duncan case (the Division of Industrial Relations) has dutifully followed the statute and increased the maximum wages for TTD.

How is it that the same agency that promotes inflation protection factors for TTD opposes the same protection for life pension or PTD claims?

It's all politics.

Duncan is gone, Schwarzenegger is gone. The recession appears to be easing. How will the Supreme Court go?

I urge the Supreme Court to do the logical thing and uphold the 2nd DCA's ruling. If the legislature didn't intend for life pension and PTD claims to keep pace with inflation then it would have been very easy to say so right in the code section. In addition, starting the indemnity rate at 2004 levels makes no sense for a claim originating 10 or 20 years hence - all one has to do is look at the price of fuel in 2004 (about $1.70) to today (about $4.00) - inflation ravages the annuity.

NCCI's Annual Symposium & State of the Industry

I'm writing this in the terminal of Los Angeles International Airport (Gate 4B by the way!) awaiting my flight to Orlando, Florida for this week's annual presentation by NCCI on the state of the industry.

Being from California I have a distorted view of workers' compensation. California represents about 20% of the total workers' compensation market - certainly not an insignificant amount considering there are 49 other states out there, the District of Columbia, and a few territories that provide workers' compensation systems. So going to NCCI Annual Issues Symposium (AIS) gives me perspective on the industry that can't be obtained anywhere.

I learn something new every time I go to the AIS, which is one of the reasons I go. While California has some unique aspects about its work comp system, we have plenty to learn from other states.

Another reason I go is because there are 700 other very high level executives and state administrators who attend, so the networking is fantastic. And sharing thoughts about work comp, understanding the issues, and sharing our common passion for work comp just can't be beat. Plus this is usually the only time out of the year that I can get together with my colleagues.

I certainly will post my color commentary about my experience at AIS and anything new I learn. Of course, my impressions can't replace professional journalism, which is why we will have our Senior News Editor and head of the News Department at WCC, Jim Sams, covering the event. To get the full story be sure to read Jim's pieces following AIS.

And if any of you reading this are going to be at AIS be sure to drop me a line - I'll see you there!

AZ's Unique Drug Control Prescription

Friday Arizona Governor Jan Brewer signed into law a unique twist to the various attempts to control prescription drug costs with HB 2616.

Under the new law, which takes effect July 18, an insurance carrier or self-insured employer is not required to pay for office visits when a physician fails to provide justification for narcotic prescriptions or fails to comply with a request to consult with the Controlled Substance Prescription Monitoring Program (a database of prescriptions for controlled substances that was created by lawmakers in 2008 to prevent patients from doctor shopping to obtain multiple prescriptions) before writing a prescription. The bill also allows the insurer or employer to request a change of physician.

This is a unique approach because it incorporates several elements that various other states have implemented or are attempting to implement.

First there is the bureaucratic hassle factor of additional reporting and forms by requiring physicians to provide justification and/or failure to comply with the "program".

Second there is the financial incentive (or disincentive) tied to failure by not getting paid for office visits.

Finally there is the possibility of losing the income stream tied to ongoing patient treatment.

Other states are trying to control physician dispensing prescription medicine abuse with just bureaucracy (Oregon), caps (Texas), outright bans (Florida), and utilization review (California). Some states allege much higher costs to work comp systems as justification for new regulation of physician dispensing of drugs, while other states seem more concerned with social reform.

Regardless, the wave of new ideas on controlling prescription drugs in the work comp market will be interesting to monitor over the long term to see which, if any, solution actually makes a difference. The alphabet soups (NCCI, CWCI, WCRI, etc.) will all be watching.

Cuiellette Case Highlights the Legal Fiction of Disability

When California’s 2nd District Court of Appeal ruled April 22 handed down its decision in Rory Cuiellette v. City of Los Angeles last week, affirming a $2.7 million verdict against the City for FEHA discrimination, it highlighted the legal fiction of disability, and that is why an employer can not rely on a court ruling that an employee has any certain level of disability.

Cuiellette was injured on duty and requested an assignment to the court desk of the fugitive warrants section when he returned from medical leave. He worked the job for less than a week when he was dismissed because his workers’ compensation claim resulted in a 100% disability rating.

The case is important to me in several respects:

First, the case very powerfully demonstrates the vulnerability of business to employee law suits that go far beyond the liability exposure employers experienced when workers' compensation was first born.

Second, in a very graphic way, this ruling highlights the fact that a disability award, impairment rating, etc. is pure legal fiction with no basis in reality whatsoever.

Item two above is special to me because the counter-argument I hear all the time, when I propose that workers' compensation is no longer relevant to modern society (i.e. taking medical out of work comp, so all that is left is an indemnity component), that the determination of disability is so deeply connected to the medical component of work comp that the two can not be separated.

I have always argued that the system of "disability" that we have in work comp is pure fiction, has no basis in reality, and is there simply as an accommodation because we have to have some system of measurement to base compensation on.

My problem with this system is that the current system rewards disability - the wrong incentive is placed before everyone that engages in the work comp disability determination.

My argument is that we should change the system to reward productivity. How would we do that? Sharper and more creative minds will have to help with that answer.

But how we end up rewarding productivity is not the point of this post - the point is that the Cuiellette case demonstrates that disability in the work comp system is a legal fiction at best. We have been tweaking and twisting how to compensate disability for 100 years so we have lots of experience doing that.

There's no reason we can't change the formula to reward productivity - doing so would not entail any more legal or medical fiction that is currently in place, and may shift societal expectations towards the betterment of all. Disability is a fiction that the system has "learned" and there's no reason that productivity could not be "learned" as well.