Tuesday, June 30, 2015

Nausea On Final

John Swan, Director of Sales and Marketing for DocuCents, flew home with me early Saturday morning from the Summer California Applicants' Attorneys Association conference in Las Vegas.

We had a dinner meeting the night before and of course drank more wine than reasonable people should - but this was Vegas...

The plan was to meet in the hotel lobby at 5:30 a.m., get a cab to Henderson Executive Airport, and be wheels up by 6:30 a.m. before the desert got so hot that density altitude would become a problem (for non-pilots, density altitude is how high the airplane thinks it is as a consequence of temperature and other factors; the higher it is, the less performance available to a piston aircraft so climbing becomes compromised).

I woke up with a slight headache, showered, and reported for duty. Swan was ready to go as well. Neither of us ate anything before take off.

Swan is an enthusiastic flyer. He likes small airplanes. I doubted his ability to stay awake during the flight because of altitude, consumption of alcohol the night before and lack of sleep. He discounted my concerns however, stating he would be awake the entire flight despite my opinion that altitude would deprive his brain of oxygen, already challenged by the prior night's activities.

I should have know something was up when we jumped the cab and the driver didn't know where Henderson Executive Airport was - oh boy...

We eventually made it to the airport, the long way due to the cabbie's reliance on unreliable GPS, and after a careful pre-flight we were on our way.

Swan passed out at about 5,000 feet en route to our cruise altitude of 8,500. He awoke momentarily a couple of times, but otherwise was snoring. I was dehydrated so I gulped a few bottles of water during the hour and half flight while Swan slept peaceably.

Oxnard was overcast as anticipated so I requested the ILS 25 approach.

"Bonanza Six Six Four One Mike, fly heading two one zero, descend to four thousand five hundred feet, expect approach clearance with the next controller," came the order from So Cal.

And then it happened - all that water I had gulped to cure my dehydration on an empty stomach wanted to come back up, probably with a few particles of undigested food from the night before.

I woke up Swan, and concentrated really hard, breathing deeply, trying to keep everything down. Of all the times to get sick, preparing for an instrument landing is NOT THE TIME TO GET SICK! I couldn't even reach the barf bags...

Fortunately my zen-like focus quelled the queasiness, and I made an otherwise uneventful landing, and I actually felt quite fine on final approach.

And yesterday the U.S. 9th Circuit Court of Appeals affirmed SB 863's imposition of a lien activation fee in Angelotti Chiropractic v. Baker.

The appellate court said that there was no constitutional issue and that SB 863's lien activation fee was not against the law. The court lifted the injunction and took the initiative to dismiss the Equal Protection claim.

Lien claimant representatives are stunned. SB 863 supporters are ecstatic.

Questions loom: What about all those pending liens that weren't activated during the injunction period? What about the payment system - will it be able to handle a predicted rush of backlogged payment requests? Are there going to be temporary rules to deal with this (at least Division of Workers' Compensation spokesperson Peter Melton told WorkCompCentral that there will be further announcement on some procedure in the next couple of weeks)?

Noted defense attorney, Richard "Jake" Jacobsmeyer in an email to interested persons summed it up nicely, stating, "Lien claimants are now in something of a no man’s land with the faint hope that a further appeal may save them from the lien activation cost but the compliance clock will probably be ticking and once it stops, the jig will be up on their liens."

So there's panic in the lien-represented community. The stomach full of gulped water is gurgling. It's feeling a bit uncomfortable.

Take a deep breath though, and exercise some zen-like concentration.

What has happened during these past 19 months that Angelotti was pending? During that time period pending liens could have (and should have) been activated without paying any fee and they would have been decided. We don't know how many cases have already been through the gauntlet and are now out of activation fee burden.

Indeed, post SB 863 medical bills are subject to Independent Bill Review. We know that IBR has been, compared to estimates, largely underutilized, suggesting that what gets paid is not worth appealing when there's a fee involved and unknown recovery prospects.

Will the Angelotti case further discourage medical providers from treating workers' compensation patients? I suggest that's not an issue and that any medical access problems have nothing to do with being able to prosecute a lien - those issues are much more complex than recouping an account receivable years after it was due...

Will there be any further lien-based system savings with the Angelotti decision? I doubt it. I think those savings have all been realized, and the actual filing fee for liens post SB 863 is more responsible for that cost containment.

In short, though the court's decision is perhaps surprising, in the big picture it doesn't really mean a whole lot except to a few vendors with small liens, such as photocopy services.

After we put Forty One Mike away in the hangar I took Swan to the parking lot to meet his ride, and I returned to the hangar.

As I pulled my truck up in front of the hangar the nausea returned in shockingly quick manner and I barely got out the door before expelling water and a few undigested chunks onto the ramp.


But I felt better and went on a bicycle ride.

Monday, June 29, 2015

Dr Terrazas' Rebuttal

The following is a rebuttal submitted by Dr. Ramon Terrazas, reprinted in its entirety, to my post "Change the Ride."

Member, UMR Diversity Committe at University of Pennsylvania Occupational Medicine Residency

I respectfully disagree with some of your points. I do not discount there that there might be some "rogue" claims adjusters who might also be incompetent, and then some who are nice and just plain incompetent, but there are some simple truths about the post-SB 899 paradigm. 

First medical decision-making was taken out of the hands of the claims adjuster only as far as denial of said treatment was concerned. The latter statement was an example of good reform. Yes it added a second bureaucratic and expensive administrative layer to determine medical necessity, but the intent was also to bring "rogue" physicians in line with evidence-based treatment of work-related injury and illness, to drive out the rogue physicians who enabled excessive treatment and unnecessary disability, and to take out of the courts adjudication for medical treatment.

SBC 899 also provided the overburdened adjuster a path to decrease their workload by sending all requests to UR, the path of least resistance, and created a path that allowed them to escape accountability of their work product. The claims adjuster could shift blame for denial of treatment to the UR people, whether UR was "inside" or a third party vendor, and whether or not UR "got it right". The adjuster was no longer accountable for medical decision-making.

There may very well be carriers out there who have an internal mechanism to perform UR and that system may be automated and computer-driven, but one unmistakable truth exists:
The treatment request must offer medical necessity, or contain the elements that demonstrate how the particular request for treatment for a particular patient in a particular situation meets MTUS guidelines.

At the end of the day the doctor's medical report must be read, and I don't care how good of OCR your computer may be capable of performing for doing the work of UR and letting a computer read the request and medical report, but the sad truth is that for most of the routine requests submitted to the carrier the doctor did not submit the necessary medical report. For most routine requests for treatment the treating physician does not know where to find the MTUS or how to check to see if their request meets MTUS criteria for medical necessity. Even for treatments that have been routinely authorized in the past because the injured worker has been awarded future medical treatment for an injury from before UR was codified, there has to be medical justification for the requested treatment and many physicians fail to document medical necessity.

Keep in mind that that community of attorneys and providers are by and large involved with the treatment of somewhere around 20% of all work-related injuries, and the perceived inadequacies your community talks about at your annual conference do not represent the tip of the iceberg. The other roughly 80% of injured workers resolve their industrial accidents and return to work. Their medications are authorized, their diagnostic tests are authorized, and they get better, but not because the system worked for them or got it right, but because they did not have serious injury and their treating physicians either documented how the injured workers' symptoms and findings met MTUS criteria for medical necessity, or the treating physician was willing enough to take the time to talk to the UR physician and discuss the medical necessity, and was able to articulate the medical justification that met MTUS criteria.

Yes I agree that some carriers are better than others and that some carriers blow it with some injured workers, but the system gets it right when everyone plays by the same rules. Everyone is accountable and it is easy to try to diffuse accountability, easy to shift responsibility to another party. It is easy for the treating physician to blame the carrier for denial of treatment, but did the treating physician submit in a timely manner the necessary medical documentation that showed how the requested treatment met MTUS criteria?

What about IMR? What percentage of reviews through IMR upheld the UR decision? IMR is demonstrating that UR got it right the first time around. Sure there was a backlog of requests for IMR, and one could also be critical of the 15-20% of IMR reviews that reversed the UR decision and led to unnecessary delays in treatment. What does not get published are the percent of IMR reversals where the carrier was procedurally at fault or incorrect, or the percent of IMR reversals where UR physician just plain got it wrong. But if 80% of the time IMR is validating that UR got it right, and most of those IMR decisions were for the litigated cases where the attorney pushed for IMR (thereby contributing to the backlog in IMR), something must be working in favor of the injured employee. Evidence-based medicine is prevailing.

Unfortunately currently there is no feedback loop from IMR that allows system errors to correct themselves through good case management, so the same faulty logic that denied treatment for one injured employee is likely to produce the same result for a different injured worker.

Yes the system is imperfect but the truth of the matter is that most workers' needs are being addressed through workers' compensation. All stakeholders need to be accountable to ensure that the 20% that end up as litigated cases also have their medical needs met and that their treatment follows evidence-based medical treatment guidelines. Just because you can order more physical therapy, chiropractic treatment, or acupuncture does not necessarily mean that it is medically necessary. Same goes for that prescription for OxyContin, topical compounded Lidocaine/Cyclobenzaprine/Amitriptyline/Gabapentin cream, or Valium.


My reply:

Thanks for your opinion Ramon. I will post it for community response. 

But you only deal with UR and IMR - that was not the point of my post. Please read more carefully. The point of my post was that medical care is being unreasonably DELAYED and this drives up costs. 

Also you mention SB 899 - IMR was the product of SB 863. 

Finally, UR starts with the adjuster. There is no requirement that an UR company perform that service. 


Change The Ride

I flew home anxious from the Summer California Applicants' Attorneys Association conference in Las Vegas Saturday; there were some tasty aftermarket parts to install on The Sewing Machine!

TSM is a 2011 Honda CBR250R. I bought it from a friend about 18 months ago with only 281 miles on it for a paltry $2,900. How could I go wrong?

All motorcycle owners modify and customize their machines. It's inherent in the gear-head mentality. It can't be helped - motorcyclists have an affliction called Compulsive Modification Disorder.

So I rode the heck out of it, resisting the CMD (though barely) until it was time to replace the tires at about 3,500 miles. I wanted to get a feel for the bike, understand its characteristics, and also understand what mission it would be fit for me.

Honda designed the CBR250R as a sporty beginner's bike, but in truth it has much more sport in it than beginner, particularly if you've been owning and riding bikes as long as me.

What I discovered was probably the PERFECT Malibu canyon carving bike. With only 24 rated horsepower this bike isn't passing anyone unless it's a really tight corner, but with only 320 soaking wet pounds to throw around there aren't too many bikes that can stay with it in the corners, except for bicycles - and they can't keep speed up hill!

The weekend before I had already installed some excellent Bridgestone Battleax BT 090 radial tires to replace the trashed stock IRC rubber. Waiting for me in the garage upon return from CAAA were a set of Woodcrafter Racing clip on handlebars (1.5 inches lower than stock) and rearset foot pegs from Yoshimura Racing that put the foot controls 40mm rearward and 30mm higher than stock.

Then I went riding on Sunday afternoon.


I had a different bike. Wow. An already competent canyon carver turned into a cornering cue ball. The confidence of the sticky tires in combination with the new riding position put more smiles per miles on my face than ever; and this bike had already attained status as one of my all time favorites in 45 years of riding.

Just a couple of minor, and inexpensive, tweaks, and the entire character of the bike, and the grin on my face, changed in huge proportions. I'm glad I waited to find out what I had, what I needed, and what was available before throwing solutions onto something that I didn't understand.

Which brings me to the CAAA convention.
The Sewing Machine when it was "new".

There was, unfortunately, a recurring theme with everyone that I talked to there - and that included attorneys (both sides), doctors and vendors: Injured workers' medical care continues to be delayed and/or denied for no logical reason.

Remember the statistics from the Workers' Compensation Insurance Rating Bureau's annual meeting just a few weeks ago? Dave Bellusci, the Bureau's Chief Actuarial, showed us that California leads the nation, by a long shot, in delayed care. And that delayed care equated to costs that were oodles above the rest of the nation directly and indirectly.

That unfortunate statistic was born out by the anecdotal evidence I encountered at CAAA; whomever I talked to had the same basic story - there is a real problem getting doctors to treat workers' compensation patients.

Eventually some treatment occurs at some level, but the amount of delay and procedural interference in getting to a treatment status is causing a huge increase in compensable consequences (and some consequences that aren't compensable, at least in the eyes of the insurance industry).

One story that seemed to represent that common theme was of an injured worker that had been receiving consistent medical care for years. Same medication, same procedures, same everything. All had been authorized, all had been paid for, all was dependably provided.

The treating physician then retires. A new physician, not as adept at comp as the original treating doctor, takes over the case and prescribes the same treatment as before, albeit not as skillfully, negating some documentation or some other minor defect.

The request goes to Utilization Review and gets denied.

During the time period of the UR procedure applicant's attorney notes the defect in the treatment request, and asks the doctor to correct it. He does, it gets submitted, and that passes UR.

On the day that UR approves the second request (remember, this is for the same procedure as the first), a denial is issued from UR for that first defective request.

Now comes the galling part - the claims adjuster assigns the matter out to defense counsel to contest the treatment request.


So now, not only does the injured worker NOT get the treatment that he has been receiving as authorized treatment during the entire pendancy of his claim, but his attorney has to go to court to get the treatment authorized.

Folks - that's just plain wrong. If that adjuster were under my supervision, he'd be no longer. That's what I call in my rough manner, A-hole Adjusting. There's no reason for that behavior, and there's no excuse.

Yet I heard tale after tale of similar stories while at the CAAA conference, from attorneys, from doctors, from other vendors.

There seem to be several underlying reasons for this malevolent behavior.

First off, UR seems to be cook book programmed. I don't know whether this is true, but from the evidence I have to assume that there are computer algorithms out there that dictate what the UR decision is without any human intervention, and if any element is missing from that algorithm then denial occurs.

Second, and related, claims has increasingly been taken out of human decision making. The logic has been ascribed to computers that can not connect endpoints if a dot is missing.

Third, the old guard medical providers aren't adapting well. The old saying, "you can't teach an old dog new tricks" has some truth to it. They just can't adjust to this new paradigm of medical treatment review and authorization.

Fourth, the new medical professional is of the Millennial Age - they don't have the patience for this BS. If it's not a push button system then it isn't going to be in the treatment arsenal. And they're certainly not going to put up with multiple levels of review without compensation for the effort.

The doctors that are left, and who are doing it right, still won't see a patient if the claim is older than six months. I had one doctor specifically tell me that - the reason: she doesn't get paid to review volumes of medical records to figure out what is going on. So she just doesn't take on any patients with dates of injury more than six months prior to appointment.

Oh, and there has to be prior approval on procedure and cost before committing to that patient.

So as a consequence there really is a medical access problem! There are doctors. But the patients can't get to them. And when the patients actually do get to a physician the delays in treatment approval are ridiculously lengthy.

Here's what's going on - injured workers, bottom line, aren't getting the medical treatment they should, and as a consequence the vast majority of EMPLOYER'S costs (those that participate in the the insured market) are going up.

SB 863 was a radical reform. SB 899 was a radical reform. Both occurred just a few years from each other. Both were supposed to reel in costs while providing better benefits to injured workers. Both have not succeeded in that mission, in my humble, albeit anecdotal view point (with some quantitative support from the industry).

Instead of waiting for the tires to wear down, and to understand the character of what we have and our mission, we changed everything. And now we're finding out that there are attributes that aren't so savory.

You might argue that my sampling is a small cross-section of claims that is overrepresented because I was talking to litigators. But the truth is that if the injured worker were treated quickly, efficiently, and without unnecessary interference from procedure and process, then most of those litigators would not be telling me these tales.

The system pushes claimants to attorneys, who still can't help their clients. The cards are stacked, and in the wrong direction.

All of us, every single one of us, will ultimately act in accordance with what is in our own best interests. If the law provides a system where an insurance company can save money on a claim then that is what the carrier is going to do. If the system promotes excessive disability to determine compensation, then that's what will happen.

The next modification to TSM is some front suspension tuning. I now understand that how and where I ride my bike overtaxes the forks; they are both underdamped, and under-sprung.

California workers' compensation is both OVER-damped, and OVER-sprung. But I don't think we need more radical solutions.

We've ridden the machine now for nearly 3 years. We know what needs to be done.

But it will take everyone to set aside their own, personal, self-interests.

Friday, June 26, 2015

Haves Versus Have Nots

Disparity in treatment between people in similarly situated; this is one of the most fundamental constitutional analysis applied when a statute is tested.

It's a test of fairness, a qualitative test that may have some quantitative basis, but ultimately is a "touchy-feely" sort of test.

There were 38 states that exempt certain levels of the agricultural industry from workers' compensation.

Now there are 37.

The New Mexico Court of Appeals, in two consolidated cases, Noe Rodriguez v. Brand West Dairy and Maria Angelica Aguirre v. M.A. & Sons Chili Products, ruled that there can be no distinction between the people who pick crops, and those who bag them.

Since 1937 farmers didn't have to buy workers' compensation insurance for their field workers.

Workers who perform tasks essential to the cultivation of crops are excluded from coverage, as distinguished from those who perform tasks such as processing crops. The law also differentiates between people who care for and train workers as part of a farm and ranch operation - they did not need to be covered - and workers who care for animals and train them for competitions, who are covered.

Employers argued that the law exists to simplify the administration of the workers' compensation system and protect the agricultural industry.

The court rejected those arguments, and frankly they aren't logical. Seems to me that it's more complex to distinguish between classes of workers as to who is or isn't covered is more complex than applying work comp to all workers. And the state only has 15,000 filed workers - this isn't California after all; I don't see the big burden on New Mexico farmers beyond the fact that their onions are going to cost a couple more pennies per pound now.

The court saw it that way too.

"We conclude that there is no substantial relationship between the exclusion and the purported government interests of increased workers' compensation efficiency and lower costs for the agricultural industry," says the opinion. "There is nothing rational about a law that excludes from workers' compensation benefits employers who harvest crops from the field while providing benefits for the employees who sort and bag the very same crop."

And maybe the farmers affected directly by the case will encounter some hardship (the judicial change in the law is retroactive to March 30, 2012 on a procedural distinction), but the state provides uninsured employer protection to workers injured without coverage, and statutes of limitation are also going to significantly reduce potential claims from arising.

In addition, 5,000 of the 15,000 estimated population are voluntarily covered, so the claims population drops even further.

This may or may not start a trend - as noted, there are 37 other states with some sort of agricultural exclusion. Most of those exclusions are basically for mom and pops operations.

What's interesting to me is that, in contradiction to the rest of the nation, this case represents support FOR workers' compensation.

From Florida to California, there are, or have been, constitutional challenges AGAINST state workers' compensation statutes in one form or another.

The Florida Padgett case, decided by the Florida Third District Court of Appeals just days ago, found that Judge Cuetto's declaration that the state's laws were unconstitutional was procedurally flawed, leaving open the substantive issue.

In California several cases are pending testing the constitutionality of various parts of that state's system under the most recent reforms.

There is the nascent, yet real, trend of opt-out challenging the viability of work comp.

All of this demonstrates the schizophrenic personality of workers' compensation. When it's needed it's a godsend, particularly if it is executed properly. When it's not needed then it's a burden that should be somebody else's problem.

At times workers' compensation makes no sense. Other times it is irrefutably necessary.

There are people who can't access the system, or at least access it in any reasonable manner. And there are those who don't want to be forced into the system, or at least not within the particular boundaries declared by law.

It's all a compromise. Like life itself, there are always winners and losers and nearly no one is happy one way or the other.

Regardless, the bottom line, which I think the New Mexico Court of Appeals got right, is that there can not be an arbitrary distinction between the haves, and the have nots.

It just doesn't feel right.

Thursday, June 25, 2015

Padgett Out, Now What?

The big news that I'm sure will be circulating the workers' compensation world of information this week is that the Third District Court of Appeals in Florida reversed the Padgett decision.

Recall back in 2014 (seems so long ago!) that a trial judge in Florida wrote a lengthy opinion about the inadequacies of that state's system, opining that reforms had so decimated benefits that the system no longer met constitutional muster.

The state took that case up on appeal, I presume to set the record straight.

But the 3rd DCA set aside Judge Cueto's ruling on procedural grounds, not addressing any of the merits.

This leaves the question open.

The organizations pushing the constitutional challenge have vowed to continue the fight.

And those defending the system realize that the attacks will continue, particularly since there are still two cases pending in the Florida Supreme Court attacking smaller provisions of the law on similar grounds (Westphal v. City of St. Petersburg is about the statutory limits on the payment of temporary total disability benefits, and Castellanos v. Next Door Co. involves a challenge to the cap on claimant attorney fees).

I'm headed to Las Vegas this morning to attend the California Applicant Attorneys' Association's annual summer conference. Padgett isn't on the agenda, but I'm sure there will be plenty of discussion around the exhibit floor, and perhaps even in the sessions, on the case.

When we pull away all of the emotion though, the question, really, is: if workers' compensation (in any jurisdiction) is unconstitutional, then what's the alternative?

Do the plaintiff lawyers REALLY want workers' compensation to go away?

Or are they using a big club to get the attention of lawmakers to get back to the bargaining table and take a look at whether or not there is some validity to their cause in seeking a better system?

Do employers REALLY want to face a jury of their peers, or are they comfortable with the risk that they are just one injury away from financial catastrophe?

I find it hard to believe that, but for a few rogues, the plaintiff lawyers REALLY want to do away with workers' compensation, and likewise I find it hard to believe that employers are comfortable with the risk. 

When work comp operates well it does what it is supposed to do and everyone makes out okay.

And when it doesn't work well then there are tragic stories to tell.

Sam Miller, the executive director of the Florida Insurance Council, told WorkCompCentral, that his industry needs some reflection.

"So far we've dodged a bullet," Miller said, but if either Supreme Court case results in parts of the comp system being invalidated, employers and their insurance carriers are likely going to have to contend with increased costs, and groups like his are going to have to put pressure on lawmakers for a legislative fix.

Perhaps when that happens those who represent injured workers will have greater a louder voice when the sausage is made, from Florida to California, and all the states in between.

Wednesday, June 24, 2015

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.

Tuesday, June 23, 2015

Like The Weather

There's so much to comment on this morning that I'm feeling a bit schizophrenic.

But there's a common theme: workers' compensation seems to exist in this vertical vacuum surrounded by a vortex of outside forces that tug and pull on the funnel like a tornado traveling across Oklahoma's prairie lands, taking out interests along the ways, but randomly sparing others.

Speaking of Oklahoma, critics have come forth saying that a recently passed appropriations bill, House Bill 2238, will add about $40 million of costs to employers to fund the workers' compensation system. This has folks upset because it is a set back to the reforms passed 2 years ago, and the critics know that employers in the state won't understand why their bills are going up again, after promised savings.

While HB 2238 makes appropriations for the Workers’ Compensation Commission and allows workers' compensation carriers to increase insurance premiums to recoup money paid into the state’s Multiple Injury Trust Fund, it repeals the statute that allowed carriers to recoup only one-third of the assessments from policyholders. Now carriers will be able to recoup 100% of the assessments through premiums if they choose. The bill also ended a rebate program whereby carriers could recoup at least part of the remaining two-thirds via rebates from the state, thus increasing the chances that this cost will be passed along to policyholders.

In Florida workers face an absolute deadline on psyche claims six months after they reach maximum medical improvement for a physical injury, according to the 1st District Court of Appeal.

Like many states, in Florida psychiatric ailments are compensable only when tied to physical injuries. Monday, the 1st DCA said no benefits for mental conditions are payable if a worker is more than six months post-Maximum Medical Improvement of the physical injury, interpreting Florida Statutes Section 440.093(3) quite literally.

The case, School Board of Lee County vs. Huben (2015), 1D14-4476, involved a school teacher, Lisa Huben, who sustained significant injuries to her arm when interceding on an assault by a student on her classroom aide in April 2007.

The claim was accepted and Huben required extensive treatment – including seven surgeries. Huben eventually established that her arm injury left her with a 20% permanent partial impairment – but she continued to teach.

The school district assigned Huben to a position at the West High School Alternative Learning Center in December 2013, but she was unable to bring herself to open the classroom door and enter. Huben then voluntarily admitted herself to Park Royal Hospital – a facility for mental illness and substance abuse – because she didn't understand what was wrong with her.

Her doctors diagnosed her with post-traumatic stress disorder, and an independent medical evaluator opined that she was totally disabled by this condition as of July 3, 2014.

Judge of Compensation Claims Kathy Sturgis awarded Huben temporary total disability benefits of $724 per week from this date until she hit the statutory 104-week cap on temporary disability benefits.

A unanimous 1st DCA panel reversed this award Monday, saying the judge had misapplied Section 440.093(3), and that the statute was a "strict deadline after which no TTD benefits are payable on psychiatric injuries."

This is the state where a trial judge opined that the Florida system no longer meets constitutional mandates, and the 1st DCA sort of acknowledged that: "this holding may lead to results in some cases that contravene the purpose of the Florida Workers’ Compensation Law to 'assure the quick and efficient delivery of disability and medical benefits to an injured worker.'"

Curiously though, Huben's attorneys aren't sure that this opinion is really a set-back in the case in chief, because there is evidence that Huben is permanently totally disabled. That issue is pending a petition seeking such, which would entitle Huben to cost of living adjustments for life.

Finally, 3600 miles to the west, a fight is going on as to whether exclusive remedy protects municipal employers and their third party administrators from bad faith for alleged collusion in the denial and misapplication of benefits.

Fourteen firefighters and police officers in December filed a civil Racketeer Influenced and Corrupt Organizations Act complaint with the U.S. District Court for Central California alleging Corvel and York, third party administrators for the cities of Stockton and Rialto, used "frivolous and legally-unsound" objections to dissuade injured workers from filing claims and cut comp costs for the cities.

The defendants are seeking dismissal of the complaint, saying that allowing the case to go forward would destroy the actuarial assumptions underlying the risk assumption of the cities' work comp programs.

The defendants' position is that the judicial exceptions (in the 1972 California Supreme Court decision in Unruh v. Truck Insurance Exchange and the 2nd Appellate Court opinion in 1981 decision in Everfield v. State Compensation Insurance Fund) to the exclusive remedy of workers' compensation do not apply to "intentional delay and improper denial of benefits, the canceling of previously issued checks, lying to a claimant about benefit payments, committing perjury before the WCAB, or any other conduct that relates back to the investigation of claims or payment of benefits."

That's like admitting that they in fact did engage in despicable behavior, and are now thumbing their collective noses at intended beneficiaries.

Folks ask me all the time how I can write about workers' compensation every single day. It's easy really - work comp is a storm that never seems to stop. There's always something spinning, somebody getting hurt, someone laying blame, seeking insurance, getting denied, disputes, grievances, allegations, finger pointing and unreliable forecasts.

Workers' compensation is just like the weather - folks nearly always have something to say about it.

Monday, June 22, 2015

I Can't Drive 55

Doesn't it start getting ridiculous after awhile?

I'm talking about all of this fodder about cost shifting.

Because it's not cost shifting - at some point the ultimate consumer (that's you and me at the street level) pays via the cost of the goods and services we buy.

I wrote a little while ago about awakening the sleeping giant, Social Security. There's good evidence that about $12 billion per year of workers' compensation obligation is being absorbed by the Social Security Disability program, and that at some point they'll want their money back.

It took some time for the Centers for Medicare and Medicaid Services to awaken to the pot of gold at the end of their statutes, but when they figured it out all sorts of hell broke loose. Now Medicare Set Aside trusts and other forms of repayment mechanics are a daily part of the claim resolution process, increasing complexity and friction.

State Medicaid programs have been slower to the party, but they are now feeling their drinks.

Federal regulators, state regulators in Rhode Island and Kentucky, Hewlett-Packard Enterprise Systems and the Texas-based government contractor HMS are now telling the workers’ compensation industry that they want what's owed them in Medicaid reimbursement.

In the past these entities didn't have the wherewithal to figure out who was a workers' compensation benefits recipient that was passed onto the Medicaid systems.

But the digital age has empowered state Medicaid systems, and regulators are formulating rules that increase the ability of reimbursement recovery.

CMS's proposed rule, introduced June 1, would eliminate references to the International Statistical Classification of Diseases and Related Health Problems, a set of thousands of codes used to classify injuries and illnesses. The codes, currently in their ninth edition, are set to be replaced by the 10th edition nationwide in October. In the current system, state Medicaid programs use a specific section of the codes dedicated to traumatic injuries to look up patients that are more likely to be workers’ compensation claimants.

However, patients with traumatic injury codes, which are numbers 800-999 in ICD-9, aren’t necessarily the most likely to be workers’ compensation claimants.

“This amendment affords states the opportunity to revise their trauma code editing processes with regard to identifying nonproductive codes if and when they deem necessary,” the proposed rule reads.

The proposal would allow states to choose which codes to focus on, allowing each Medicaid program to look at codes more likely to lead them to workers' compensation claimants while ignoring the codes that don't.

The rule also eliminates references to specific versions of ICD, which means states won’t have to look to CMS for a new set of rules on which codes to pursue every time a new edition comes out.

But, despite the liberalization of the rules, there's disparity in getting information because Medicaid systems are digital, and a lot of state work comp systems are still analog (i.e. paper-based).

Rhode Island addressed that problem three years ago with the launch of its Medical Assistance Intercept System. The system allows the Rhode Island Medicaid program to check its beneficiaries against lists of workers’ compensation claimants submitted by payers. The program then generates liens for payers who should have covered medical expenses that were charged to Medicaid. Employers and insurers that settle workers’ compensation claims are required by state law to check the system.

Since 2012, MAIS has generated liens for more than 440 cases totaling $5.7 million, according to the program’s website.

Other states are looking to third party vendors, such as Hewlett Packard or HMS, to do this service.

While you might think this is not a big deal, that Medicaid programs should get reimbursed for work comp obligations, there's a more threatening issue: federal intervention of workers' compensation.

What does Medicaid have to do with federal control of state based workers' compensation systems? Funding, pure and simple.

Medicaid is funded in part by the federal government. Whenever the Fed puts money up for grabs they get to dictate the rules. Remember the 55 mile per hour federal speed limit? States didn't have to follow it, but if they didn't then they risked billions of dollars of federal transportation revenue for roads and infrastructure. Consequently there was near universal compliance of the 55 mph limit.

And Sammy Hagar got a hit song.

So if the feds REALLY wanted to take control of state workers' compensation systems, all they have to do is set standards, then tell the states that if they don't adopt those standards their Medicaid funding will be constricted.

And don't think that can't happen, or happen in the near term.

As you know, OSHA published a blistering critique of workers' compensation. And there is increasing noise about federal imposition. With ever increasing federal programs affecting the health and welfare of the population (ACA, ADA, FMLA, etc.) and political pressure to "right the wrongs" of state based systems, I for one would not be surprised to see such proposals.

The other general media publications raising the noise level about workers' compensation adequacy and the disparity between various state systems will get some political attention, particularly after the next general election.

Both big parties like expansive government; the Democrats admittedly so, and the Republicans less honest about it (the last Republican president, George W. Bush, oversaw the single largest expansion of the federal government in history...).

Should the industry be scared? Only if the industry cherishes the freedom of state based programs.

If the industry is not, collectively, interested in maintaining state based workers' compensation and all of the elements that entails, such as insurance freedom, self-insurance, opt-out, etc., then we can go on as we have for the past 20 or more years, with our self-interested mandates and political machinations, and ignore the fog horns.

The craggy rocks near the harbor beckon the unwary sailor. Ignore the warnings and all of our livelihoods, whether we believe them to be honest and socially beneficial, or not, will be dashed onto the shore, ultimately assimilated into a federal program.

I know you don't want to hear it, but this is what needs to happen: benefits need to be adequate, they need to be universally applicable with little disparity between states, and inter-meddlers (we call them "vendors") need to get out of the way so those benefits are delivered quickly, without interference, and without question. 

Oh, and employers are going to have to drive 55.

Friday, June 19, 2015

A Grammar Lesson

California has its rather unique "lien" system, where a vendor of services or goods to an injured worker can enforce payment by asserting a lien against a claim or case.

SB 863 inserted provisions into the process requiring payment of a filing fee, or for those liens already pending in the system but not yet resolved, an "activation" fee before the issue could be brought to a workers' compensation judge.

Both fees have been challenged in court and there are cases pending on the constitutionality of these provisions.

In the meantime, the lien fees were credited with reducing system costs a whopping $690 million dollars, nearly 40% than the $480 million that was originally projected by the Workers' Compensation Insurance Rating Bureau.

Filings dropped precipitously, lien hearings fizzled to a blip on the screen, and the system proceeded along with its other dysfunctional, frictional, processes.

Many were declaring early success and the defeat of those pesky lien claimants.

Then something happened - a statute of limitations showed up.

Lien filings all of a sudden surged, increasing 73% in the first quarter of 2015 compared to the same period in 2014, and 34% more than the last quarter of that year.

The Division of Workers' Compensation has had to make adjustments all along. One court ordered the activation fee stayed pending a hearing on its validity. Another court refused to inhibit collection of the filing fee.

Lien claimants complain that payers don't deal with them fairly, adequately or in good faith.

The payer community argues that lien claimants get in the way of the case in chief, assert ridiculous if not fraudulent demands for payment, and the process encourages nefarious behavior.

Nothing in workers' compensation highlights the crazy dysfunction of the system better than the lien claim debate. Even lien claimants themselves disagree on how all of this affects their positions in the system.

Reid Steinfeld, in-house counsel for the Calabasas-based receivables firm of Grant & Weber, told WorkCompCentral Thursday that anyone who provides a reasonable and necessary service to an injured worker on a lien basis deserves to be paid, but he didn't think it was necessarily unconstitutional to require the service provider to pay for the privilege of getting the lien claim resolved.

The sad part of this entire argument is that it is a distraction to the primary mission of workers' compensation; that is, "workers' compensation."

The system is aptly named. I've argued in the past, as has fellow blogger Bob Wilson, that renaming the system to reflect a better motivation would help steer processes in the right direction. I still believe that, but as the system stands in its present form, it is "workers'" (that's plural possessive for those who forgot about third grade) "compensation" (money, benefits or remuneration).

Let's break that down to it's basics.

"Workers'" as I said is plural possessive. That means that every worker regardless of status (that's the plural) essentially owns something.

That "something" is "compensation": "something given or received as an equivalent for services, debt, loss, injury, suffering, lack, etc.; indemnity."

Somewhere along the way we forgot about this basic element. Others who are not workers became infused with rights to compensation.

Why do vendors have to "lien" a case in the first place? Is it because the underlying reason for benevolence in the system is that injured workers can't be trusted to pay their own providers? 

Or is it because the vendors can't be trusted not to harass, hassle, and threaten people in desperate times to extract an unfair payment?

Or a combination of the above and other reasons?

I don't have an answer to these questions, and perhaps you don't either. I say it doesn't matter - we have what we have.

Workers' compensation is like the ocean tide. It surges up and it recedes back down. It is never stagnant. Sometimes the workers' compensation tide surges too much and floods big areas creating a mess. Sometimes it recedes much further than is normal or comfortable and leaves harbors dry.

But when you come to the table as either a payer, provider, worker, or whomever, remember that you are in the "workers' compensation" system - that's a plural possessive description. It's not yours, mine or anyone else's compensation; it's the "workers'".

Thursday, June 18, 2015

Share The Duck

Employee or independent contractor?

This is a question that has haunted the business world since the beginning of employment.

In the "good ol' days" there wasn't much concern and I think the overall attitude when my dad was out looking for work to help support the family was that business preferred employees because they had more direct control over their actions and outcomes.
I'm a chicken!

But as the business world grew more complex with increased regulation, labor standards and of course workers' compensation, the trend shifted, along with the demise of the Daddy Company (which took care of their employees long after retirement with generous pension plans and other benefits).

The global competitive marketplace took American businesses to task. Before we knew it there were lots of other countries that could produce the goods and services that we all consume for far less cost than we could produce them in this country because those businesses weren't subject to the same regulations, the same labor standards, and yes, the same workers' compensation standards (if any).

Now comes the "shared economy" where information is diversified among individuals willing to take on more risk in the distribution and dissemination of goods and services through singular channels that make money off a spread, providing in exchange more freedom, and perhaps greater profit, than a traditional employment relationship.

But as we know in workers' compensation, the definition of independent contractor versus employee is fungible and amorphous. As much as the business world would like, there can be no single definition with a clear black line that regulates the relationship between business and worker because there are just too many variables - however, the general rule that the more a business controls the worker, the more likely the worker will be ultimately found to be an employee.

Much has been made lately about Uber and Lyft - "ride share" companies that use technology to quickly and efficiently distribute transportation requests to providers that are sometimes found to be independent contractors, and more increasingly found to be employees.

The key element, of course, is the amount of control the company has over the worker.

News circulated fast yesterday when a California Labor Commissioner found that Barbara Berwick was an employee of Uber, and entitled to reimbursement for travel expenses.

Stephanie Barrett, the hearing officer for the case, noted that Uber delists any drivers whose ratings from customers fall below a certain point – four and a half out of five stars. The company also sets the fares customers pay for trips. Most importantly, the company owns the application, or app, that made Berwick’s work possible.

“Plaintiff’s car and her labor were her only assets,” Barrett wrote in the ruling. “Plaintiff’s work did not entail any ‘managerial’ skills that could affect profit or loss. Aside from her car, plaintiff had no investment in the business. Defendants provided the iPhone application, which was essential to the work. But for defendants’ intellectual property, plaintiff would not have been able to perform the work.”

“Defendants are in business to provide transportation services to passengers,” the ruling reads. “Plaintiff did the actual transportation of those passengers. Without drivers such as plaintiff, defendants’ business would not exist.”

Uber is taking the case up on appeal to the San Francisco Superior Court. It will argue, as it has in other jurisdictions, that the company merely provides the platform through which drivers find passengers.

The case should ultimately end up in a California Court of Appeal - San Francisco Superior Court is notoriously liberal (no surprise there) and it is my prediction that the Labor Commission's finding will be upheld at the Superior Court level.

The Berwick case stands in contrast to a 2012 decision from the commission, captioned Alatraqchi v. Uber Technologies, where a hearing officer found in favor of Uber, holding the driver was an independent contractor.

“The work arrangement was paid at a per-job rate. Plaintiff provided the means to complete the job. Plaintiff set his own hours and controlled the manner in which he completed the job. Defendant did not supervise or direct his work and only paid him when plaintiff invoiced defendant,” Hearing Officer Regina Pagalilauan wrote in that decision.

Uber is facing cases in California that could have further-reaching impacts than these single driver cases. Two cases, in U.S. District Court and the Northern District of California, are headed to jury trials to answer the question of whether drivers for Uber and Lyft are independent contractors or employees.

Silicon Valley dudes are smart - they are creating enormous value and wealth at unprecedented rates - but like many myopic technologists, digital fantasy interferes with what us liberal arts graduates often refer to as "history."

Indeed, recent history is telling enough of the ultimate fate of shared economy companies - FedEx just recently settled for a quarter of a billion dollars its liability from a 2014 California court ruling that its drivers were employees, not independent contractors.

Like Uber, Lyft and the other shared economy companies, FedEx's insistence that its drivers were  independent contractors and not employees was a critical component of the business model.

My opinion is that if it walks like a duck, talks like a duck and smells like a duck, it's probably not a chicken. Which makes it more likely to be a duck. Of course I'm in the work comp field, so I am biased towards finding an employment relationship.

Like many things that captivate our finances, shared economy technology is great. Until something bad happens. Then the downside shows up nasty, and allegiances change dramatically and quickly.

Which is why I think that shared economy companies will thrive in states where opt-out is or becomes available - one more business related tool that provides the flexibility to transform chickens into ducks.


That's a post for another day...

Wednesday, June 17, 2015

By Definition, Dysfunctional

The bottom line, universal truth in workers' compensation is that the absolute cheapest way to close a claim is to get the injured worker "all treatment requisite to cure and relieve" (you’ve read that somewhere before) as soon as medically possible.

Any delay will cause the cost of the claim to rise exponentially. This has been proven over and over again.

In order to accomplish this all of the players have to be on the same page - in other words, each of the independent special interest in the wagon that circles the injured worker (and his employer) need to set aside their interests (usually financial) and work towards the single goal of just providing the treatment.

And this means providing treatment that the employer didn't think they bought when that injury occurred.

The reality is that the employer DID buy all of the "co-morbidities" that arise once an injury is realized because the employer, at the time of hire, takes the employee as he or she is.

Pre-existing conditions that had been managed by the individual will manifest once an injury occurs. At that point, it is difficult to separate the two. The pre-existing condition aggravates the injury, or visa-versa. The two overlap. The employer winds up paying for both – one way or the other.

When the employer is "first dollar" (self-insured and administered) they have a vested interest in managing the claim costs. They take the medical provider to task by insisting on a valid treatment plan. Happily, for the injured worker, it is providing immediate and complete treatment.

While a pre-employment ‘fitness for duty’ physical isn’t the perfect solution, it will identify many cases where the physical requirements of a job and the physical abilities of the prospect don’t match. It may be disappointing to the prospect initially, but it could save them further injury later.

The pre-employment physical should also come with counseling to give the prospect an understanding of the jobs they are physically capable of doing and it might give them incentive to improve their condition. It’s not perfect but it will go a long way to mitigate the problem of employers buying a workers' co-morbidities.

Attached to the "we takes ‘em as we gets ‘em" reality is the long term employee and their on-going health issues. Their physical (or mental) condition can deteriorate over time. It can be self-inflicted (alcohol, drugs, mental illness, dysfunctional personal life, etc.) or it can be something that occurs naturally.

Taking a proactive, WHOLE PERSON, approach is a wise investment for the employer. It’s hard to quantify because it’s hard to prove the negative. How do we know an injury didn’t occur, or was made better, by preventative measures? It takes courage and foresight to change the oil every 5,000 miles when the car only has 20,000 miles on it...

In complete contrast to the self-insured/administered employers are the employers that are covered by the insurance carriers in the "guaranteed cost" programs (the majority of the employer population).

The insured market has no cohesive all in one approach. All the entities (injured workers, medical providers, adjusters, and the carrier) are disjointed. Each "steers their ship at sea" – independent and not in synch with the others. When left to their own devices, everyone will act in their own, independent, best interests - that's basic human psychology.

By definition, then, the insured workers' compensation market has to be a dysfunctional system because of the basic trend towards personal self-interests.

Most employers are covered for workers' compensation liabilities by an insurance company.

An insurance company is a financial firm: the mission of insurance is to deploy capital in a manner that generates the best return on investment possible given the structure of the environment in which that capital is placed.

The only reason an insurance company is interested in reducing costs is to enhance profits, and that's the bottom line. How an insurance company improves profits is based on cash flow and long term investments. Short term solutions where cash is dispensed in large amounts early in the claim are antithetical to Wall Street's focus on current earnings.

Insurance companies will act in their own self-interests, and there's nothing wrong with that but it does have to be recognized. If an insurance company isn't making a profit (other than state funds) then there is no reason for an insurance company to exist. They are not evil, but they will look out for their own interests first before anyone else.

This is a necessary dysfunction in the workers' compensation system, no matter where you are. Interests are not aligned because the motivations are different.

Dysfunction leads to inefficiencies – inefficiencies lead to higher costs and poor treatment plans. We see this in every insurance rating bureau graph and report where, for instance, cost containment expenses continue to grow.

The employer and the injured worker each pay in their own way.

Yet there is no way around this dysfunction, at least not without heavy handed governmental intervention, which makes nobody happy.

No, the vast majority of work comp insurance – the guaranteed cost program – will never function what we would consider proper. We may well tear it down and rebuild it, but what would the replacement look like?

Align motivations and interests come into line, and dysfunction wanes. Alignment requires setting aside short term self-interest.

Come to the table with YOUR solution to "fixing" workers' compensation, then ask yourself how much of that solution is based on your own self-interest. My bet is if you're truthful the answer is inescapable.

But if you at least admit to yourself that workers' compensation is, by design, a dysfunctional system, you are much further along the way of self-realization than the rest of the industry. And, as in most recovery programs, such admissions are the first step towards function.

Tuesday, June 16, 2015

Insurance Linked Securities

Below the clouds is a runway ... we hope.

"Although California is always one bad court ruling or piece of legislation away from disaster, we think the current environment is quite healthy."

That's what Jerry Azevedo, a spokesman for the Workers' Compensation Action Network, said to WorkCompCentral in response to the latest California Department of Insurance market share report.

238 workers' compensation carriers combined to write $11.43 billion in premium in 2014, up 10.97%, compared to $10.3 billion in 2013, and is the fourth consecutive double-digit increase.

Written premium has increased a cumulative 65.5% since 2009.

Premium growth lately is more a reflection of increasing payrolls rather than rates, as those have held rather steady in the last few years.

But another, more insidious, reason for premium growth lately is the pathetic returns that Chief Financial Officers are able to lock in using traditionally safe investments because of the historically moribund interest rate environment.

Investors can't make much if they have only a one or two percent spread to work with buying Treasury Bonds, so they are looking to alternative investment vehicles.

History doesn't look kindly to that kind of activity - the last time "interesting" financial assistance came into the California (and subsequently national) market was in the mid-1990s when the Unicover/Craigwood reinsurance scheme was being pitched to minimize carrier risk ... and dozens of carriers folded.

Now we have a new investment vehicle that is picking up steam, and I think it portends future trouble if not kept in check: ILS.

In aviation, ILS is Instrument Landing System - a way for aircraft to find the runway under a layer of clouds and fog.

In insurance ILS is Insurance Linked Securities.

The most common ILS, and what brought this alternative to note, are CAT bonds.

Catastrophe bonds are risk-linked securities that transfer a specified set of risks from a sponsor to investors. They were created and first used in the mid-1990s in the aftermath of Hurricane Andrew and the Northridge earthquake.

Wikipedia has a good explanation:

"An insurance company issues bonds through an investment bank, which are then sold to investors. These bonds are inherently risky ... and usually have maturities less than 3 years. If no catastrophe occurred, the insurance company would pay a coupon to the investors, who made a healthy return. On the contrary, if a catastrophe did occur, then the principal would be forgiven and the insurance company would use this money to pay their claim-holders. Investors include hedge funds, catastrophe-oriented funds, and asset managers. "

But the creativity of Wall Street is ceaseless, and at least one insurance investment observer indicates alarm at the "convergence" of the insurance and capital markets.

Michael Moody, MBA, ARM, in ‘Rough Notes’ magazine (April 2015 issue – page 54) writes about "Capital Market Convergence" and describes the rise of ILSs.

The money behind the capital structure of the insurance industry is increasingly being collateralized and sold off to investors with the single intent of increasing yield on capital invested: "With interest rates continuing at historically low levels, most institutional investors are looking for better yields. Currently, many of the ILS products are producing results that are 5% to 6% higher than traditional investments."

Here's the issue - there will be many investment people who know nothing about the insurance product providing the capital. Financial instruments such as Credit Default Swaps (CDS) and Collateral Debt Obligations (CDO), and other fancy named financial "treaties" created by Wall Street will move capital out of the insurance industry to the detriment of the insured public, and this includes workers' compensation.

Moody understatedly writes:

"Agents and brokers who have accounts that utilize significant amounts of reinsurance need to be aware of the advancements that are being made in the ILS market. The old days of competing on price are disappearing. Capital market professionals believe it is only a matter of time before reinsurance and ILS will be used in the same manner that reinsurance is purchased in layers today. It will not be uncommon to find excess limit programs that are made up of a combination of reinsurance and ILS. The genie is out of the bottle, and the capital markets appear to be willing to embrace the convergence with the insurance/reinsurance concept. As a result, agents and brokers who are interested in a long-term view of the insurance industry would be well advised to monitor this situation closely as it will remain extremely fluid for some time."

Certainly departments of insurance will protect us, right? After all it is their job to regulate the insurance market and ensure a safe, healthy, and vibrant industry.

Well, that didn't happen when Unicover/Craigwood came around, and there's no reason to believe that any regulating agency is going to be proactive; traditionally regulators are reactive. By the time they are alerted and take action, it's too late - carriers disappear, guarantee associations are swamped, and state funds take up the slack (as in 2000 when The State Fund covered 50% of the California market).

Blaming one bad court decision or lousy piece of legislation is looking at the finger pointing at the moon; the truth is California, and the nation's work comp market, is one bad ILS away from disaster. Carriers won't be looking for the runway under the clouds - rather they'll be looking for insolvency relief.

Monday, June 15, 2015

Deir El-Medina

San Marino
The legend is that modern workers' compensation is about 100 years old, and we know that for purposes of our history the model was derived from social programs in old Prussia (now Germany) under Chancellor Otto Von Bismarck.

But there is evidence that worker social programs existed long before our sense of recorded history, dating back to the times of Ancient Egypt - long before the birth of Christ.

An article in the latest issue of Archaeology Magazine discusses evidence from Deir El-Medina, a village that once existed across the Nile River from Thebes, that suggests the workers there, who were employed to build and decorate tombs for Pharaohs and other Egyptian elite, were not only valued employees, but enjoyed rather liberal work injury benefits.

According to archaeologists, based on human remains and written records on things such as pottery, "the town's workers were treated as valued employees, with regular food rations, access to treatment by a physician, and the right to skip work due to illness."

Archaeologist Anne Austin says that there was nothing magnanimous about these accommodations - rather the bosses made, "a calculated decision so these workers were able to continue their work on the tombs."

Scorpion stings, eye problems and hangovers were some of the maladies accommodated.

And while there were high incidences of arthritis in ankles and knees, along with high levels of infectious disease, their overall health appears to have been good.

Indeed, according to the article, much better than those constructing the pyramids at Giza, who had much higher incidences of trauma, likely due to the large stones they transported.

Eventually the economy took a toll on the town - as the decline of the burial business started and the workers apparently engaged in the first recorded labor strike. But after the fall of the New Kingdom in 1069 BC Deir El-Medina was abandoned.

When I was riding motorcycles in Italy with my son a few weeks ago, stopping to visit various historical sites, I wondered how the people that constructed these beautiful, elaborate basilicas and towers were compensated. These structures were the Bentleys and mansions of the lords and dukes of the time providing bragging rights to the owners.

For instance, on the top of a near vertical precipice stands the castles of San Marino, with commanding views of the valley to the west and the Adriatic Sea to the east. The engineering feat is easy to appreciate, but what about the labor conditions and the treatment of the workers that got those stones up the mountain?

To this day we continue to argue about work conditions and the employer's duties to provide a safe environment and liability in the event of injury, illness or death.

Just last week the Texas Supreme Court denied Randy Austin's premises liability claim against this employer, but said he could still pursue a claim against his employer for failing to provide him with a safe workplace, even though he was plainly aware of the dangerous condition that caused him harm when his employer sent him to remedy a dangerous condition on its property. Austin's employer was a non-subscriber.

And the court also upheld the lower court's ruling in Seabright Insurance Co. v. Lopez, where the employer was held liable for death benefits to Lopez' family who was killed driving to a job site from temporary housing that his employer provided in a vehicle that his employer had also provided.

The tension between employer and employee has a long, long history. What is remarkable in my mind is how much remains the same despite thousands of years of "evolution" and "reform."

Which of course leads to the ultimate conclusion - in general we fail to learn from history and are destined to repeat those errors.

Or, another way to look at it - your job in the worker safety/compensation/resources profession is likely very safe.