The Mission and The Business

I've been involved in workers' compensation for 30 years now. You'd think by now I'd have things figured out, but I realize that I don't.

Because, as I assume most of us do, I confuse the mission of workers' compensation and the business of workers' compensation.

These are two different concepts and while they coexist, they are not synonymous and in fact are completely antithetical.

Which is why we have so much friction within workers' compensation.

The mission of workers' compensation is relatively simple - spread the risk of employment injury against a big pool of employers so that the few who do experience injury or death on the job can be reasonably taken care of.

It's a big job. In fact, I like to remind people that the United States workers' compensation system(s) is/are the largest privatized social benefit system(s) in the world.

But because people need to put food on their tables and roofs over their heads (okay, and maybe a nice car) they have to get paid to do the job of spreading the risk and taking care of the injured or the decedents.

If only we could trust each other...

That's why this is also an industry: the aggregate of technically productive enterprises in the particular field of workers' compensation (though some may argue that many are not "productive").

And there's the disconnect - the people that get paid to do the job of workers' compensation have an inherent conflict of interest because every dollar that goes to someone doing their job in the system is one dollar less that could otherwise go to the injured or decedent.

Or every dollar that goes to someone doing their job could be going to someone else that wants to do some other job in the industry.

Not that this is bad, but we tend to forget this. Workers' compensation's social mission conflicts with capitalism.

For instance, a regular reader of pretty much everything workers' compensation and friend of mine groused the other day that the insurance industry "lies" to the public when it talks about combined ratios and investment returns when rates are raised.

His objection is that the industry uses accrual accounting methods internally, but puts the facts out to the public in cash accounting rules, so that the public, not really knowing the difference, thinks that because the combined ratio is 113 (or whatever it might be) that the industry is losing thirteen cents on every dollar.

As my friend says, "they collect 100% of the premium in the first year; they pay out (on average) 14% of that premium in the first year, yet, they accrue 100% of 'projected' losses as actual losses that year."

And that's true, but it's not lying, and it's not even misstating the situation. It's no different than my friend charging $100 for every hour of his consulting expertise, except that he probably uses cash accounting in recognizing that $100.

The insurance industry has to use accrual accounting because income and expense to a carrier do not occur simultaneously. In other words, a dollar has to come in to the carrier before a dollar goes out - that time line can not be altered. When it is altered then the carrier goes out of business (which is what happened in the late 90s and early 2000s when so many primary carriers got suckered into the Unicover reinsurance scandal).

The objection my friend has, I think, is that insurance companies making money, or frankly anyone in this industry making money, is discordant with the mission.

The mission of workers' compensation is altruistic.

The business of workers' compensation is capitalistic.

When new legislation comes down the pipeline it is generally first examined for its capitalistic influence - generally how much it's going to cost in dollars.

There typically is very little discussion on the altruistic influence unless it is an increase in indemnity, and even then that's tied to the "cost" of providing that increase; i.e. no altruistic discussion in workers' compensation occurs without a capitalistic consequence review.

Often, though, a capitalistic discussion downplays, or ignores altogether, any altruistic consequence.

Which is why in Wisconsin the Green Bay Packers have successfully lobbied to have football classified as a "non-contact" sport so that rates are about 7 times lower than a "contact" sport, such as soccer.

Or why Alabama practitioners are surprised at a recent court ruling giving family members pay for taking care of a severely disabled injured worker at home.

It's why micro-management of sects within the industry typically back-fires (California's SB 863) unless a sect is just eliminated entirely (witness removal of vocational rehabilitation from the California system years ago).

Each and every one of us complains about someone else getting that dollar: could be a doctor complaining about an attorney, could be an attorney complaining about an insurance company, could be an interpreter complaining about a copy service, could be a bureaucrat complaining about ... every body!

But each and every one of us (and that includes me and the bureaucrat) makes a living off the system. Each and every one of us "sees" the mission of workers' compensation but must navigate the conflict that the business of workers' compensation imposes.

That's just the way it is.

Now, get back to work and do your job. You have a mission to fulfill.