Friday, April 27, 2012

Two Parts of the Promise; The Conversation of Reform

I've had an ongoing (online) discussion with a colleague whom I consider to be very astute.

He said this the other day (paraphrased): The reason for workers' compensation has always been so that the employer could provide for injured workers in an economical way.

That is such a beautifully clear and true statement and its simplicity cuts to the very core of the existence of this system.

And so it should be guiding light to those who seek to "reform" workers' compensation, which leads to another, related, truism of his: "Work comp works exactly as it was designed to work, it does not work as it was intended to work."

Each of us in the workers' compensation industry deal with only two constituents, and have only one goal. 

The constituents: employer and injured worker. 

The goal: to permit the employer to provide for the injured worker in an economical fashion.

There's a lot of power packed into that sentence, and that sentence defines the two basic elements of workers' compensation: for the worker it's the benefit delivery system; for the employer it is the allocation of risk system.

There are providers to these two constituents who have decided to make it a business and living out of getting to one or both groups the services and products necessary to meet the goal. Some providers have conflicting interests, others are much more singularly focused. All providers serve only these two constituents.

Is workers' compensation broken? I'd say for most people most of the time it is not broken. For most workers who come into the system the benefits are delivered appropriately and in accordance with the law. For most employers the allocation of risk is done in an affordable, economic fashion.

But for those who end up on the back side of the power curve (aviators will know what I'm talking about) it can be a very disruptive, very destructive place to be in life, whether one is an employer or an injured worker. These are the stories that drive "reform".

When the system does not work, it fails in a miserable way.

Is it because there are not enough checks and balances? Is it because there isn't enough regulation? Is it because certain elements take advantage of workers' compensation's complex nature and low profile for unfair advantage and profiteering?

California regulators are going around the state accumulating ideas and getting input on how to "fix" the system.

Oklahoma politicians are batting around a non-subscription option (defeated by that state's House yesterday with proponents regrouping for another assault on the beach head).

New York has spent the last couple of years trying to get it's "reform" moving out of the starter blocks, and Illinois is still struggling with the cultural overtones that have hampered its system.

Several months ago I had lunch with a former California regulator who is as passionate about workers' compensation as anyone I know. Deep in her heart she truly felt that workers' compensation is a good, and necessary, component to social order and economic vitality. She worked tirelessly from the regulator aspect to put into place policies and enforcement mechanisms to meet the requirements of the law with unwavering optimism.

Even she admitted that sometimes she feels that the current workers' compensation system in California should just be scraped and that we should just start over.

No matter how you slice it, workers' compensation is as pure of a service industry as one can define. I love that insurance companies call their policies a "product". It is no more a product than my pledge and a handshake on a promise. Insurance is just a promise that some service will be provided in the future. Just a promise.

A promise requires trust. There must be trust that each will perform as expected and that each will employ what is necessary to make that promise good.

In all states other than Texas, workers' compensation is not a free market (and I could argue that even in Texas it is not a free market if a business wishes to take on the risk of an injured worker).

Workers' compensation is a mandatory market. Employers must have workers' compensation insurance (or legally be without) and employees must go through the workers' compensation system if hurt (or claim to be) at work. There are exceptions and ways around this, of course, but the bottom line is that the system is mandatory to both constituents and if one is caught trying to get around its mandatory nature then one gets penalized.

When legislators and regulators debate how to "fix" workers' compensation they need to step back and get to the heart of the system. It is mandatory. Free market principles don't apply. They don't work.

Even in Oklahoma, non-subscription there (if it comes to pass) would need to meet the minimums of the workers' compensation laws - so even this radical approach to the ultimate goal is rooted in mandatory terms.

So when any administration, whether it is California, the Federal government with FECA, or Oklahoma, thinks about some workers' compensation reform, the basic premise of the system needs to be kept front and center. One can not "reform" the benefit delivery system without also "reforming" the allocation of risk system. They go hand in hand because there are only two constituents and each has their unique reliance on the promise.

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