Wednesday, May 11, 2016

The Natural State

The relevancy of workers' compensation is in question, so that is bringing industry professionals, and injured workers, together in various forums to open dialogues about what a modern work injury protection system should do, how it should function and what it would look like, including the 2016 Workers' Compensation Summit in Dallas TX that starts today (I will miss the first day due to travels).

Work comp escapes general insurance/risk management definitions. Most lines of insurance/risk management are monopolistic - there is only one element to worry about, only one principle to manage.

For instance health insurance only deals with medical, life insurance only deals with (curiously) death. Even auto or home insurance, which could have a "medical" provision, is really monopolistic because the medical component is just reimbursed, not managed.

Workers' compensation, however, is a triad: disability and medical lines are directly controlled and managed in the work comp setting, and so is liability (because of the exclusive remedy portion).

There's a lot of ideas floating around, and a lot of concepts being discussed. Some of that conversation is fairly basic, working within the existing framework of work comp. Some of it is more radical suggesting strategies that dismember the triad.

Regardless of what the "ideal" system is (and I don't think there are any, just compromises), there are plenty of outside forces which the laws of physics and mathematics say will impact whatever is implemented.

Economist Daniel Kaheneman, in his book, Thinking, Fast and Slow, argues that most decision-making, even at the highest level, is impacted by swarms of intuitive biases, misinterpretations of data, illusions and misconceptions of which those making decisions are blindly unconscious and thus no one decision-maker (and thus, over time, no one decision) is consistently superior to another.

The theory of entropy also comes into play; that is, the natural state of all things is chaos, i.e. without order. Regardless of how much we implement rules, constrictions, fortifications, etc., eventually all order returns to its natural state of chaos.

Think about computers for instance. Computers essentially manage electricity to create the illusion that there is order and stability, so I can type this blog. It seems reasonably reliable and I can predict that when I hit the "R" key an R will appear on the screen.

But we know that computers eventually all crash and cease function. That's because the natural state of electricity is chaos - electricity is nothing more than the harnessing of electrons zipping around space into some short form utility until that energy is release and the electrons return to a disordered state.

Light bulbs exemplify this - light is temporary and transient. It is "on" only when the electricity is ordered to vibrate a filament, and when the electricity to the filament is terminated the light ceases.

If we take the theory of entropy, and apply Kahenaneman's argument about decision bias, then it would seem that no matter what we do with workers' compensation, or any work injury protection system, there will be, in mathematical terms, a return to the mean, a natural state of chaos, in part because of bias in the decisions that produce the design.

Which is to say there will always be winners and losers, there will always be a vast majority for which the system will work, and there will be outliers that fall between the cracks or get more than what they're supposed to.

The purpose of this dialogue that is occurring around the country is to propose work injury protection schema that serves the modern, information age, economy.

Trauma incidents for the most part are limited to a very small subset of occupations, for instance, so perhaps the triad of work comp isn't the best way to manage most exposures. Health care remains the biggest exposure for most of the populations, so perhaps that is a component that needs to be available to all working people, not just those who can afford it.

Disability is an even smaller subset than medical care. The vast majority of the working population won't ever be disabled, not even temporarily, at least not to the extent that work productivity is compromised.

Even liability - one of the most sacrosanct features of work comp is exclusive remedy, but perhaps that's not relevant to most employers in the 21st century as it was 100 years ago because of safety laws, oversight and simply the fact that we're not so industrial any longer.

100 years of work comp, 100 years of order, and we're seeing entropy creep in.

Court rulings, unconstitutional provisions, uncompensated workers, increasing costs, profiteering, and downright bad behavior; it simply is a return to the mean, a return to the natural state of things.

If we believe, as most do I think, that the vast majority of people are essentially "good", then the mean will function quite well no matter what the natural state is. The examination of entropy that is now ongoing is a product of the outliers; functions, actions, people and things that don't concern the vast majority of the population.

So while it may be time for a rebuild, a time to return order and a new architecture drawn, the reality is that theses discussions are about re-ordering the outliers and broadening the bell curve that got castrated over time as a consequence of entropy.

How all this plays out is anyone's guess. I'm just saying that no matter what is done, eventually it too will return to a state of entropy because decisions are not rational no matter how rational we believe the decision-maker to be and we can't control nature.

That's not to say that what is work comp now can't be better or that there is a better model for work injury protections.

But what replaces the work comp that we have known the past 100 years will also, eventually, regress to the mean, have outliers on the curve, and entropy returns.

But that may take another 100 years.

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