Monday, October 29, 2012

The Supply and Demand of Work Comp

Workers' compensation reform is all about trades within the boundaries of the supply and demand of costs versus benefits. California is going through a seismic shift in the allocation of supply and demand, and a couple of other big states are feeling tectonic pressures too.

Both New York and Illinois have received considerable criticism since both states attempted to implement "reform" several years back - both states failing to realize the cost savings that were promoted as the cause 'd reform.

Now there is movement afoot since both states received unflattering cost rankings in Oregon's latest survey. 

The study showed Illinois had the fourth-highest workers’ compensation costs in the nation. In 2010, the state ranked third.

New York was ranked the fifth-most expensive in the nation for employers in the Oregon Department of Consumer and Business Services' biennial premium survey. Two years ago, New York ranked No. 13.

Illinois Chamber of Commerce President and Chief Executive Officer Doug Whitley told attendees at the chamber’s fourth annual Workers’ Compensation Conference on Thursday that the agenda includes changing the causation standard to include a primary cause of an injury standard and definitions of work-related accidents will be a major component of reform.

The Chamber feels that because a work accident does not currently have to be the sole proximate cause or even a primary cause of an injury to be compensable, too much of workers' compensation pays for issues that should be covered by general health insurance or the injured's own pocket.

I don't know if this is accurate, nor do I know of any studies or other attempts to measure whether in fact workers' compensation in Illinois is paying more than its fair share for employee health problems.

If you recall, just a few months ago Emily Spieler and retired Rutgers University professor John Burton released their report, , "The Lack of Correspondence Between Work-Related Disability and Receipt of Workers' Compensation Benefits," which was published by the American Journal of Industrial Medicine in January, found regulatory and reform efforts in recent decades have been focused on employers' and insurers' needs and are inducing systematic complexities that push workers away.

Their conclusion was that workers' compensation was cost shifting responsibility to the general health insurance market, and not the other way around.

Illinois may be different - that's certainly possible. With medical costs being the primary component to workers' compensation insurance premiums it is understandable why business would want to make sure that expenses are properly accounted for, in addition to the availability of "extras" in work comp such as indemnity and return to work costs.

Again, it comes down to what people want.

“Causation is the No. 1 issue,” Whitley said. “The Illinois standard is so minimal that most employers feel the system is stacked against them. Every employer knows the causation standard makes it practically impossible for claims to be disputed and denied."

Challenging a claim at its inception would then seem to create a culture where the first dollar is sought from the general health market - and maybe that's the way it should be, and maybe that's the way it shouldn't be...

In all honesty, segmenting the provision of health benefits depending upon delivery system seems at its heart to be inefficient and a cost driver in itself. And whether creating a new causation standard in fact would lower costs is debatable, since doing so would, in my opinion, create a new "litigation point."

Workers' compensation is fundamentally skewed in favor of the employee, with liberal interpretation the predominant standard, so making work the "predominant cause" or some other amorphous standard won't really reduce that many cases going into the system, but will greatly increase the number of friction points in the processing of claims.

Eight hundred miles away, in New York, State Workers' Compensation Board (SWCB) Executive Director Jeffrey Fenster is on the hot seat, still trying to get the 2007 reforms into place.

Fenster told WorkCompCentral that the first phase – implementing the Spitzer reforms – is now complete. He said the second phase includes overhauling the board's computer system. Finally, he said the board is discussing legislation to expand on the Spitzer reforms.

He said the board wants to address "misaligned incentives" that have delayed the imposition of duration caps imposed on permanent partial disability (PPD) benefits by the Spitzer reforms.

In February, Fenster said, SWCB analyzed its databases and identified 4,000 injured workers who appeared to have reached maximum medical improvement (MMI).

New York law requires judges to classify a worker's loss of wage-earning capacity once they have reached MMI. Fenster said the board sent 4,000 letters to carriers and self-inured employers on Feb. 1 requesting details on those cases and seeking submission of the board's "medical report of permanency" form.

So far, he said, the survey has received a 13% response rate.

Fenster said New York carriers appear to be delaying classification of PPD claims, in part, because of another piece of the Spitzer reforms – a requirement that carriers deposit the present-day value of classified PPD claims into the state's Aggregate Trust Fund.

"The response rate on those 4,000 letters is incredibly poor. The motivation to classify doesn’t appear to be out there," Fenster said. "The ATF deposits are certainly part of the answer."

Fenster said the need for workers to reach MMI in order for the PPD caps to kick in has increased litigation, while the classification of PPD cases remains slow.

"In essence, we have created a new litigation point over MMI," Fenster said. "When you start drilling down to find out the problem with MMI, fundamentally, it’s a culture of litigation. (In some states) you just don't have the heavily litigated points that we do."

It's all a trade off - which is what workers' compensation is in the first place. Business traded off some defenses and labor traded off some jury awards. Business benefitted by getting some reasonably predictable risk, and labor benefitted by getting some reasonably predictable benefits.

Costs and benefits are essentially the commodities of the workers' compensation marketplace. There are limited supplies of both.

Reform talks are all about trading within the available supply. The demand can be constricted to some extent, but at some point, in particular if the economy becomes healthy and there is an increase in employment, the pressure will task available supply, and the political power allocation at any given moment defines the supply/demand boundary.

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