Uncompensated Californians

The third in a series, WorkCompCentral's latest special report on benefit adequacy, specifically temporary disability indemnity, takes a look at California.

This is, of course, of particular interest to me. I'm from California and as much as the state is denigrated by the rest of the workers' compensation community, it's temporary disability benefit is one of the most generous - perhaps because the cost of living in the Golden State is one of the highest.

It didn't use to be that way. For many years the TTD rate was stuck at abysmally low, static levels. The statute (LC 4453) was changed so that, beginning in 2004, the TTD rate would be tied to inflation as represented by the State Average Weekly Wage as determined by the Federal Department of Labor. Since then the SAWW has inflated 69%...

Still, even tied to inflation, what really happens when someone has a work injury and is off work for a protracted period? The statute, like many states, limits TTD to 2/3rds the employee's wages, subject to a ceiling, and with a maximum duration.

But California is a bit more liberal in terms of waiting periods - only 3 days of total disability before the benefit kicks in, and then retroactive to the first day of disability if more than 14 days pass. Most states have a 7 day waiting period and retroactivity doesn't occur unless more than 30 days pass without employment.

Our study examines two workers diametrically opposed in the employment sector - a farm worker who gets injured on the job, and the physical therapist assigned his case; a low wage earner and a high wage earner. As you will note from the report, neither are adequately protected by California's TTD law, and both suffer long term financial consequences far beyond the direct injury sequelae.

While you should read the report, and draw your own conclusions, here are the basics:

Jose, the farm worker, sustained an actual net loss in take home pay of 16% - nearly a fifth of his normal net pay. To a person living paycheck to paycheck, i.e. essentially on the edge, 16% is a big number, particularly if your average pay is only $21,900 per year...

Jose had to forgo savings, had to forgo support to his family in Mexico, and ends up having to rely on the generosity of his roommate to overcompensate for his financial detriment.

Worse, Jose no longer contributes to the economy, and comes out of workers' compensation a public benefit dependent.

One might think things would be different for Mike, Jose's physical therapist.

Mike's average annual wages are decidedly upper middle class at around $100,000. But kids to put through school, a mortgage, car payments, and the basics of a middle income lifestyle doen't leave a whole lot of room for a dark day, even with savings.

Mike's budget was $5,769 per month. The adjuster couldn't figure out the TTD rate because she was confused how to calculate wages when pay is based on case load (to me that's shocking and, frankly, completely unacceptable - it's a very easy calculation...) so she just didn't pay (again, completely shocking and unacceptable) and then when she did pay the amount was wrong.

But even after Mike got an attorney who was able to "school" the adjuster on how to calculate the TTD rate, that rate is capped far below Mike's needs. Indeed, because of the adjuster's error Mike had to tap his 401K and, if not repaid timely, will suffer additional economic harm.

These Special Reports are not intended to advocate for reform one way or the other, or to cast aspersion on the workers' compensation system - rather they are intended to highlight issues that we, as a society, need to take a serious look at.

I observed yesterday that perhaps the workers' compensation insurance industry's steadfast battle for work safety may, in the end, foster the irrelevancy of such insurance for the vast majority of industries and employers.

There's a palpable tension in workers' compensation that's more acute than it has been in some time.

The WorkCompCentral reports on benefit adequacy compel, I think, reviewing the basic social policies that created workers' compensation in the first place.

It comes down to value. If employers are paying too much for too little, will the industry survive? If enough people suffer financial harm from a privatized social benefit system that is inadequate, is there reason to keep it in place?

We, as an industry responsible to society, have some soul searching to do.

The Uncompensated Worker series, along with all other WorkCompCentral special reports, can be downloaded at https://www.workcompcentral.com/news/special-reports/. The reports are free, though you will need to register to retrieve the reports, unless you are already logged in as a member.

What's In A Name?

About half of the United States have capitated limits on the duration that an injured worker can get temporary disability indemnity benefits.

The trend started about 20 years ago, when TTD duration was unlimited, and so was the open status of claims.

It is common knowledge - the longer a claim stays open the more expensive it becomes, and the less likely the injured returns to work.

In response, states started implementing caps on TTD duration. This, of course, was challenged in the courts and universally upheld as a legislative prerogative.

Since then, 23 states have capitated TTD status. The caps range from 104 weeks in California and Florida, and 105 weeks in Texas, to as many as 700 weeks in New Mexico.

Another 20 states, including Illinois and New York, allow an injured worker to collect benefits for the duration of temporary disability, according to the Workers' Compensation Research Institute.

In Kentucky, workers can collect TD for the duration of disability or until they qualify for Social Security. Iowa allows injured workers to collect TD benefits for the rest of their lives.

Washington currently has no cap on TTD, but a bill proposed by Rep. Matt Manweller, R-Ellensburg, House Bill 2337, would allow workers to collect temporary disability benefits for as long as total disability continues, or 60 months, whichever is less.

At the same time, Manweller filed House Bill 2338, which would end TD benefits when a worker reaches maximum medical improvement. The bill would also authorize a reduction in TD benefits if the worker has not reached maximum improvement, but has recovered some earning capacity.

A worker not yet at MMI who has partial earning capacity would be entitled to 80% of the actual difference between present wages and earnings at the time of the injury, provided wages and benefits don't exceed 150% of the state's average monthly wage or 100% of TD benefits.

Washington's Joint Legislative Audit Review Committee published a comprehensive report on costs in the state's workers' compensation system, pointing to the lengthy TD duration as a key cost driver.

According to the report, the average TD duration in Washington state was 291 days in 2012, compared to an average of 140 days in 46 other states, as estimated by the National Council on Compensation Insurance. Average duration of TD benefits in Washington has exceeded the national average each year from 2001 to 2012, according to the committee's report.
The committee blames that duration on the fungible standard of "employable."

"This is different from the majority of states that terminate temporary disability benefits once maximum medical improvement is attained, regardless of 'full' employability; if there is 'zero' employability, then permanent and total disability benefits would be warranted," the report says. "This difference, at least in large measure, helps explain the longer average time-loss durations in Washington."

In general I'm not in favor of drawing artificial lines in the sand. Each case, each person, each injury, is different. What works in one situation may not apply to a similar, but different situation.

But temporary is temporary - it is not of unlimited duration. At some point there has to be a declaration that, while someone may continue to improve throughout their lives, a condition is no longer "temporary" - we all have to move on.

What's interesting to me is that Washington's JLARC seems to think that the "employability" standard is more subjective than the Maximum Medical Improvement standard used by other states as a determinant for ending TTD status.

"It is a matter of some disagreement between employers and labor advocates in Washington state as to whether the way 'employability' is assessed in Washington is fair and reasonable," they say about the employability standard. "Some feel that identifying that the person can get a common job making minimum wage (e.g. fast food, retail, delivery, customer service) satisfies the test. Others feel that employability must take into consideration the personal limitations of the worker that may have pre-existed the injury, e.g. prison record, substance abuse, extensive tattoos/body piercing."

But when it comes to MMI, "It seems logical that when most injured workers reach maximum medical improvement, often also called 'fixed and stable,' they are no longer temporarily totally disabled, since additional treatment will not help them recover any more," implying that MMI is a more objective standard.

It isn't. Both rely on an "expert's" opinion. While an opinion may be based on fact, it is still an opinion: "a belief or judgment that rests on grounds insufficient to produce complete certainty."

The only way to "produce complete certainty" is to make something certain - and a time limit does that if "temporary" is to meet dictionary standards.

"What's in a name? That which we call a rose
By any other name would smell as sweet."

Romeo and Juliet (II, ii, 1-2)

What's in "temporary"? "Lasting, existing, serving, or effective for a time only." Employability, MMI, or 60 months...

Defining Temporary

A vexing question that some jurisdictions have addressed statutorily is, just how long is "temporary," as in temporarily totally disabled, for purposes of indemnity payments while recovering from a workers' compensation injury.

By the very simple universally accepted definition, temporary means lasting only a period of time - what that time is, however, is not universally accepted.

Washington DC, Virginia, Indiana and South Carolina have 500-week caps on "temporary" benefits.

That seems generous compared to California,Texas and Florida, which have the shortest periods of TTD, cutting off benefits at the 104 week-mark (California makes an exception for certain types of injuries where the cap is doubled).

The limit in Florida is before that state's supreme court after the First District Court of Appeals ruled the limitation constitutional, and that St. Petersburg firefighter Bradley Westphal could seek permanent total disability benefits when his TTD ran out.

The California Workers' Compensation Appeals Board issued an en banc decision saying that an employer or insurer must start paying permanent disability benefits based on a reasonable estimate of an injured worker's ultimate level of permanent disability if the applicant has exhausted his 104 weeks of eligibility for temporary disability benefits.

In contrast, the Wyoming Supreme Court last June invalidated an administrative rule that limited temporary total disability benefits to 36 months.

Last week the District of Columbia Court of Appeals ruled in Clement et al v. District of Columbia Department of Employment Services that the 500 week limit for "any one injury causing temporary or permanent partial disability" applied to injured workers who are temporarily totally disabled.

Royston Clement and Marie Eason had argued that the plain language of D.C. Code Section 32-1505 (b) indicated that the 500-week limit applied only to temporary partial disability benefits and permanent partial disability benefits.

The Compensation Review Board said the statute was ambiguous, but concluded that lawmakers had intended to set a maximum length of time during which an injured worker could recover benefits for both total temporary and permanent partial disabilities, thus the 500-week cap applied to Clement and Eason.

The appellate court agreed.

500 weeks - that's 9.6 years of being "temporarily" disabled.

One of the major tenets of workers' compensation law is that there be "certainty."

The employer needs to have certainty as to its (or it's insurance company's) liability.

The injured worker needs to have certainty about an income stream.

Neither can be certain if there's never a resolution for a temporary situation. At some point a line has to be drawn, a boundary set, a definition in place that reasonable people can rely upon so the next chapter in a workers' compensation case can be written.

Setting a time limit on a temporary benefit may seem arbitrary, and certainly there are going to be people on the back end of the curve that don't fall neatly within the proscribed period - the unfortunate thing about workers' compensation, or for that matter any sort of benefit system, is that it can not be all things to all people all the time.

I keep going back to the original "definition" of the Grand Bargain established by the United States Supreme Court back in 1917 - "reasonably just substitute."

In a civil case, there is no accommodation for temporary total disability. There is simply a verdict and it might include components for lost wages, pain and suffering, and other sorts of "common law" components that we, as a society, have deemed appropriate when there is a "loss."

The US Supreme Court, in NY Railroad vs. White, said certainty was a key element of determining whether workers' compensation is a "reasonably just substitute" and that certainty applies to both employer and injured worker.

That workers' compensation sets for a different standard for "damages" with categories of disability: temporary partial, temporary total, permanent partial and permanent total. These substitute for wage loss, and to some degree pain and suffering in as much as disabilities that have permanency are typically paid in accordance with some sort of schedule.

At some point in the duration of a disability it must cease to be temporary. Perhaps a medical condition has not yet stabilized after nine and a half years - well life is never stable. There is never permanency to life - it is dynamic, ever changing.

The only permanency is death.

And there's a payment schedule for that too...

It's Productivity Loss

We all basically know that the longer someone is off work due to a work injury, the more likely there's going to be increased disability, and the less likely there will be a return to work.

What we really don't know, exactly, is why.

Bowzer: obesity and smoking are ID'd with back pain.

There are certainly contributing factors and the analysis is complicated.

A recent series of studies underwritten by the Liberty Mutual Institute for Safety, and not specifically for the workers' compensation industry, is beginning to examine the why - though there is still a lot of work left to be done.

The researchers now call this "productivity loss" - people with productivity loss experience a hugely disproportionate level of disability, to the tune of up to 45 times those that reflect little or no productivity loss as measured by the researchers.

The latest study, published this month in the Journal of Occupational and Environmental Medicine, found five typical “trajectories” people follow over decades in productivity loss. Those who are at a consistently high risk of productivity loss during their lives and those who start out with little productivity loss in their 20s, but begin having worsening productivity in their 30s were the ones most likely to have a permanent disability or leave the workforce altogether.

One of the researchers, Glenn Pransky, said the study represents a new way of identifying people who are at risk of developing work disabilities, whether that be from a work injury or other source, and eventually leave the workforce altogether, because of a new set of risk factors of which not much is known.

And the research is too green to draw much from at this point.

“This data’s not really specific to new people just getting on a job. So we don’t really know when people were hired, when the productivity loss is relative when they’re hired, so it’s really hard to extrapolate choices about who you hire and when,” Pransky said. “And with the (Americans with Disabilities Act), you really need a lot better data before you make a non-hire decision than what we’ve got here.”

An earlier study from Pransky and co-author Elyssa Besen found that workers who are obese, have existing back or leg problems, have “emotional issues” or hypertension were all more likely to have long-term productivity loss. Even having frequent or severe cold and allergy problems was linked with productivity loss.

“When you think about work-related injury, we know that work-related injury and recovery from work-related injury is slowed by the presence of comorbidities,” Besen said. “So these people would be a group where if they got injured, it would probably be a much longer recovery time if they were able to recover at all.”

All of this makes sense. If someone has a condition, be it physical or mental, that interferes with productivity over a course of time, then certainly one would expect there to be a "trajectory" (as the researchers call it) where one could project a disability pattern.

But does this do any good? Or, the opposite, does this actually do harm?

The Americans with Disabilities Act prohibits discrimination on the basis of disability, and the courts have been defining disability for purposes of the ADA for some time now. Does a comorbidity, or series/sequence of comorbidities, that has been identified as a leading indicator of disability, fall within the prohibitions of the ADA?

And if so, where does the discrimination stop and start? Where does the employer, or other ADA vulnerable class, draw the line? At what stage can an employer safely conclude that a particular employee is not desired, or represents too much of a risk? How deep can a prospective employer delve into an applicant's life to determine whether there are risk factors that aren't acceptable to the employer?

There are many more questions.

This research is troubling in that regard - because while the science may say one thing, the law says another.

Real Questions Unanswered

Now we're in the last quarter of the year, things are winding down, and the industry is still debating the impact of SB 863.

Yesterday some new data was released by the Workers' Compensation Insurance Rating Bureau on whether, and by how much, SB 863 has had on expenses in the California system and the verdict is that gross initial projections seem accurate, but the breakdown of where those savings came from is different than expected.

The cost of liens dropped more than anticipated. WCIRB spokespeople put the reason on the filing fee and that is certainly a big component as many of the small liens, such as those from interpreting services and copy shops, aren't worth much more than the fee itself.

And while that certainly may be the case, I know by talking with some of these folks that they have been waiting on the sidelines for the fee schedules on interpreting and copy services - they weren't going to risk a $150 fee on a lien if they didn't really know the value of their services and can enforce payment; payors likewise aren't going to honor a bill for services that may not be "within fee schedule," and with no certain penalty for late or non-payment there's no reason to incur such costs.

Requests for Independent Medical Reviews continues to increase.

WCIRB reports a total of 37,083 applications were submitted for IMR in the first quarter of 2014, compared to 40,930 in the final quarter of 2012. In the second quarter of 2014, the number of applications climbed to 59,967. It increased again in the third quarter to 61,793.

Quarterly increase in IMR requests.

The WCIRB's projections that IMR would save $390 million a year were based on the assumption that, at most, 5,000 applications would be filed each month.

According to WCIRB, Maximus, the IMR review company contracted to perform the service, has a backlog of about 26,431 undecided cases at this point, but has completed more than 120,000 reviews, generating about $34 million in carrier payments so far, with the WCIRB projecting that the total amount carriers will have paid for IMR in the first two years of the program to be about $77 million.

Maximus shareholder equity past 5 years.

"The unanswered question is how much was saved by denying unnecessary medical care," the WorkCompCentral story this morning queries, stating that Greg Johnson, director of medical analytics for WCIRB, said the WCIRB simply can't answer that question.

Honestly, there's no way the WCIRB will ever be able to answer that question because it is not germane to IMR filings - we don't really know that IMR is denying unnecessary medical care. We only know that IMR is upholding Utilization Review denials, which may, or anecdotally more often than we admit, may not, be about appropriate care.

As I mentioned before, the anecdotal evidence suggests that UR is being used too often for cost containment rather than directing care. And frankly the amount of time it takes to get through a couple of UR denials and appeals, and then IMR review, denial and appeal, is incentive enough not to push for any particular treatment request - it's easier just to go to a general health doctor to get treatment for an ailment of "unknown origin."

And this is peripherally supported by current data the WCIRB reported.

The Rating Bureau projected that IMR would resolve disputes faster than going to the Workers' Compensation Appeals Board, which could reduce the average number of paid temporary disability days by 5% in 2013.

But the average number of paid TD days actually increased to 92.5 in calendar year 2013 from 88.6 in 2012.

Spokespeople for the WCIRB deflect, and state that this is due to getting the program up and running, and they expect the paid TD days to ameliorate; regardless nearly 90 days or three months is too long with or without IMR, particularly compared to nearly every other jurisdiction.

The dollar value of permanent disability indemnity is falling in line with projections - and that's understandable because the historical data on PD is robust; there's a lot of history in the data, but there are still many unanswered questions because it takes time for cases originating within the SB 863 era to get to final disposition where the information is reported.

My take away from the reporting is that uncertainty continues to dominate the California system - there just are too many components to SB 863 to say whether anything is actually working or not. Traditional analyses, in my opinion, aren't sufficient to explain the behavior patterns of system vendors because there are too many moving parts that have not settled into a business practice pattern.

In the meantime, while the insurance industry continues its narcissistic conversation about costs and expenses, the real questions are: a) are employers paying less for workers' compensation insurance now compared to before SB 863? and b) are injured workers getting better treatment, faster and more efficiently than before SB 863?

So far the answer to both is ....

no.

******************SHAMELESS PLUG******************

On December 6 at the Sheraton LAX Gateway hotel I will be presenting the WorkCompCentral Word on the Industry report, which will be followed by a debate between Department of Industrial Relations Director Christine Baker, Vons/Safeway VP of Risk Management Bill Zachry, applicant attorneys James Butler (No Cal) and Robert Rassp (So Cal) with a special motivational appearance by injured worker Dwight Johnson. We'll also be presenting the Comp Laude Awards, there will be networking, food, drink, music, dancing and all of the other year end, holiday event accoutrements. Tickets are on sale now and going fast (claims adjusters call for pricing).

Stop Whining, Do Something

The Labor Day holiday weekend gave me a couple extra days to think and write - excuse the length of this entry.

My post, "The Word Didn't Get There," generated a lot of commentary. Some agreed with the post, and some disagreed.

Several said I need to stop picking on the insurance companies and claims administrators, some wanted to know more information about who, what and when, presumably for some legal attention.

One person even said they were going to cancel their WorkCompCentral subscription because I was being too hard on insurance companies.

And some said I was being too soft - that quite simply the insurance or third party administrator folks are just capitalists doing their jobs maximizing profits for shareholders so they're not to blame; and they're also not to be relied upon for corrective leadership either.

"You can stop bitching at the professionals that participate in the System to ‘do better,'" I was told. "They are all Capitalist and their job is to maximize their profits. It is the job of the government to regulate what is ‘fair and reasonable’."

On the heels of that, another insurance professional contacted me to point out that a big travesty of the workers' compensation system is how the law permits the shifting of system liabilities on to greater tax payer funded systems.

In California, for instance, there is a capitation on the maximum amount of temporary total disability time - in general it is 104 weeks (unless the injury falls within the statutory catastrophic categories).

I'm told, "the 104 week CAP from what I've seen is like a license for employers, carriers, and TPAs simply to refuse payment of benefits because - no matter what happens - the worst case scenario is 104 weeks of TTD.  Meanwhile, EDD [Employment Development Department for those not in California - responsible for administration of the state disability system] pays, followed by Social Security benefits."

According to this professional, "I've reviewed several cases on which the dates of injury are, at the very least, 5 years old and the applicant has been TTD for most of the time, beyond 104 weeks.  But who really cares?  Case denied (although ultimately found industrial) and still no payment of TTD because it doesn't matter - in the end, only 104 weeks will be due.  Meanwhile, injured workers are financially ruined, not to mention, suffering from the physical and in many cases, the emotional effects of their injuries."

Advocates and supporters of the insurance and TPA industries are going to say these are isolated incidences, and that the industry does a good job of ensuring compliance.

But why should there be ANY isolated cases? Just because we make mistakes? 

What if it were YOU on the receiving end of a mistake? What if it were YOUR money, YOUR treatment, YOUR life?

The California Division of Workers' Compensation has an Audit Unit and each year they publish a report on the "success" of the industry to meet its obligations. But every year there is widespread failure documented.

You may argue that the term "widespread failure" is inaccurate. After all, the Audit Unit in its last report from 2012 reviewed 3,445 files resulting in 4,690 violations. Some of these audits are random but by regulation most audits occur via some complaint or because the subject failed an audit last time.

There are penalties for failing to process a claim in compliance with law. But even if a penalty is assessed, it might not be subject to payment (sort of like getting a parking ticket that you might not have to pay). 

In the Audit Unit's small 2012 sampling, penalties would have been $1,273,489. But 83% were "not subject" to payment.

Remember that the $1.2 million in penalties was derived on a survey of only 3,445 files. To me, that's pretty significant.

In 2012 the unpaid indemnity in the audited files averaged $1,078.18 – the prior two years were $1,530.27 and $1,468.87 for 2010 and 2011, respectively. So if these statistics are taken at face value then one could argue that compliance is improving and that the industry is doing a better job at meeting is obligations.

Or is it?

While we can't extrapolate the compliance numbers directly to the bigger picture because audits are triggered by regulation to occur on some earlier findings of misfeasance - not all audits are completely random as I noted - we can use these numbers for illustration of how big an issue this likely is.

Let's assume that the audit findings of unpaid/underpaid/late-paid indemnity is applicable to just 10% of all cases (which is likely too small from the anecdotes I get every day). In California nearly 500,000 new litigation cases are filed every year, and we know that quite often litigation is initiated because someone isn't getting their money, or isn't getting it in a timely manner...

But, using 10% as a hypothetical, that's about 50,000 cases ("about" because 500,000 total cases isn't accurate - again, just illustrating a point). If the average unpaid indemnity of $1,078.18 is applied to those 50,000 cases, now we're talking nearly $54 MILLION dollars, just in California, that injured workers (or their beneficiaries) didn't get.

And that $54 million obligation likely got pushed on to EDD and then Social Security.

A complaint I hear from the claims adjuster side of the business is that most of their claims handling experience is all compliance related - all of the forms, reporting, data inputting, crossing tees and dotting eyes, takes time away from the proper administration of claims.

But when I look at these kind of numbers, it seems to me that there isn't nearly enough emphasis on compliance.

And maybe the compliance burden is just an excuse. Maybe the truth is that the reason compliance is such a burden is because case loads are too high to do effective work.

I received a different email from yet another former claims adjuster, who is now going to law school. She relates a story similar to those above, where quality claims work is "rewarded" by the supervisor with case load manipulation so that the executives think the numbers are reasonable based on the case load report. But after the report was delivered the numbers were shifted around to punish or burden the adjuster.

Or maybe the manipulation was just to "meet the numbers" so the supervisor looked good to the executives.

This particular adjuster complained to upper level executives and to state officials (NOT in California by the way!), but the conduct continued. So she quit and will be a lawyer next year...

All of which makes me think that maybe government isn't doing it's job. Workers' compensation is for the most part a compulsory, mandatory system - enforcement therefore is the government's job.

Sure there are laws and regulations by which the government plays by to regulate the industry, but perhaps these regulations are inadequate and don't give the government enough teeth to FORCE compliance 100% of the time.

I know I'm going to hear that 100% compliance isn't reasonable and is unachievable.

That's shirking responsibility and making excuses. I hate excuses. 

Industries all over the world seek and many achieve 100% compliance on a variety of service or manufacturing standards. The workers' compensation industry shouldn't be any different, and in fact, should be held to a more strict standard since it is the LIVES of PEOPLE that we are dealing with.

The flip side of the coin is, of course, that recipients can't be trusted either to report concurrent income, or go back to work timely, etc. But that's why we have certain systems in place and guidelines to help determine whether any particular individual is an outlier and needs to be treated differently, or be reviewed for potential abuse.

Here's a big problem with enforcement and compliance - fear of industry retribution. People on the front lines, the ones that are actually doing the work, want to keep their jobs. They are fearful of speaking out. These are people that are passionate about the mission of workers' compensation, and want to continue working in the industry.

I hate big government. I come from a perspective that reasonable people will behave reasonably and don't require Big Brother to keep them straight.

Unfortunately not all people are reasonable, nor do all people behave reasonably.

The reason insurance, and workers' compensation in particular, is so heavily regulated is because of the potential for harm and abuse is huge. Poet Oscar Wilde wrote, "I can resist everything except temptation." Temptation drives bad behavior. Regulators, i.e. the government, are there to protect the public from bad behavior - would it not be reasonable then to expect that government act more forcefully to trim temptation?

One person wrote me with what may be perceived as a radical idea - that all cases, 100% of them, be audited; that funding for this state action might initially cost about $50 million (hmmm - isn't that about what is probably being denied injured workers?) but after the industry adjusted to this oversight the cost would go down; and the cost would be funded by penalties that are ACTUALLY COLLECTED (i.e. mandatory payment or lose the license).

I'm not sure this is a workable idea, by the way, but the employer (that's right EMPLOYER) advocate that raised this idea insists that it could work and that it wouldn't have to be in place for long for insurance companies to understand that 100% compliance was compulsory, just like the rest of work comp.

Industry leaders over the past couple of months have been expanding on the idea that workers' compensation needs to rebrand itself in the public's eye if it is to attract new top talent from the millennial generation. The industry needs to be seen as helping others in times of need rather than as an industry or system that is antithetical to Robin Hood: take from the poor and keep it.

How is the industry to honestly promote brand identity of "doing good" when the actuality is far different? Do you think the millennial generation is that stupid?

100% compliance should be the goal of every claims house. Forced audit of every file could be a good mechanism if I thought that government could pull it off - but I don't have any confidence that would happen (brings to mind the phrase, "close enough for government work...").

Certainly, however, broader, stronger, and more effective auditing and financial penalties, up to and including revocation of insurance or claims administration licensure, should be implemented so the industry understands that government, The People, are serious about workers' compensation delivering the value that employers pay for, and workers rely upon.

*********************

Post script - Rafael Gonzalez, VP at Helios, posted on Linked In that, "Of the individuals receiving SS disability benefits in 2012 in US, 1.4 mill (12.8% of all 10.9 mill beneficiaries, or 15.9% of 8.8 mill disabled workers) had a connection to work comp. www.nasi.org"

So I did some quick research: 

A prior study funded by the SSA concluded that various state WC reforms during the 1990s contributed to a 3-4% growth in SSDI payments.(http://www.ssa.gov/policy/docs/ssb/v72n3/v72n3p69.html)

In 2012 about 12.7 million people got SSD. 3.5 million got supplemental security income, and 1.4 million got both. The gross population for these benefits is 12.7 million.

For those ages 18-64 (i.e. our working age population) there were gross of 8.4 million WORKERS receiving one or both types of benefits, totaling over $13 billion dollars in 2012.
(http://www.ssa.gov/policy/docs/statcomps/di_asr/2012/sect05.html#table66)

So let's do the easy math - 16% of $13 billion means that work comp was successful in off loading it's indemnity obligation to government social programs to the tune of $2.56 billion dollars.

And we're going to argue about whether on not work comp does it's job????

MA Tax on Indemnity Just Wrong

The desperation of some lawmakers when it comes to resolving budget issues is impressive, if not downright scary to the average person, or in the case of Massachusetts, the average injured worker.

Massachusetts Gov. Deval Patrick is pitching a plan that would apply the state's personal income tax to all indemnity payments made as part of workers' compensation awards beginning on July 1, 2014.

Work comp indemnity in Massachusetts works the same as in most other systems - benefits for temporary total incapacity are paid at two-thirds of a worker's pre-injury wage to 60%. Lawmakers also capped benefits at 100% of the state average weekly wage.

These standards were established in 1991 and, according to the Massachusetts Workers' Compensation Advisory Council, were based on the assumption that benefits would remain untaxed.

And that makes sense - the purpose of the indemnity is to provide some living money while recovering from injury - and generally factored into that equation is that no taxes would be deducted in that the maximun "earnings" are capped and there is, theoretically at least, no ability to generate income while disabled.

The Massachusetts Taxpayers Foundation estimated that eliminating the exemption for workers' compensation awards would produce $8 million annually under the current tax rates.

Patrick's budget estimates revenues from taxing workers' compensation awards at $6.7 million for fiscal 2013-2014.

What isn't accounted for is the additional frictional expense of collecting those taxes - a task that likely would fall on the state's insurance companies and plan administrators. Collectively, I am willing to bet that implementation and ongoing collection of $8 million in taxes from work comp indemnity payments matches or exceeds what gets collected.

And that expense will get passed down to policyholders, which means the state's employers end up with double taxation, except with additional layers of expense thrown in for good measure.

Massachusetts isn't a big state and it doesn't have a lot of industrial accidents.

The state Department of Industrial Accidents reported workers filed a total of 13,449 new claims in fiscal year 2011-2012.

Alex Zaroulis, director of communications for the Massachusetts Executive Office of Administration and Finance, said Wednesday that Patrick sought repeal of the exemption as part of a broader effort to raise $1.1 billion by eliminating tax breaks.

"The thinking was that eliminating the exemption for workers' compensation benefits as part of a bigger package of changes would be a fair approach, Zaroulis said Wednesday.

That thinking is wrong. Taxing the income benefits of injured workers who are already receiving at least one-third less money than they would otherwise be making if able bodied is decidedly unfair.

And $8 million isn't going to make much of a dent in the elimination of "tax breaks."

John Regan, advisory council chairman and vice president of government affairs for Associated Industries of Massachusetts, said, "My strong sense is that the House and the Senate won't go along with it. Unless something extraordinary happens, my sense is this is no longer on the table."

It shouldn't be on the table in the first place.

Medical Networks and Indemnity Caps

California leads the headlines this morning with two very interesting, but unrelated, developments.

First, the Division of Workers' Compensation (DWC) in a public hearing held in Oakland on Wednesday said it is exploring the possibility of using the Department of Insurance or the Department of Managed Health Care to oversee entities providing physician network services.

There are arguments on both sides of the fence on this issue of course.

Greg Moore, president and chief executive officer of Harbor Health Systems in Irvine, said he is concerned that allowing the Department of Managed Health Care (DHMC) to regulate MPNs would create problems in California similar to what is happening with efforts to implement preferred provider program rules in Illinois.

Moore said the proposed rules in Illinois “reflect very much of a group health influence” with certain standards for approval dealing with co-pays and other issues “that have nothing to do with workers’ comp.” The concern is that this would make it more difficult to establish and maintain networks in work comp.

The other side of the argument is that allowing the DMHC to perform the oversight is that they have experience and expertise in the financial health of medical networks.

In response to the failure of several physician organizations in the 1990s, California lawmakers in 1999 passed SB 260, creating a Financial Solvency Standards Board within the Department of Managed Health Care. Organizations are required to submit quarterly reports and take corrective action if they don’t meet solvency requirements.

A white paper by California’s Integrated Healthcare Association said the regulation has made the group health provider network more stable.

I haven't studied the issues enough to take a position on the proposal, but what I do find fascinating is that this represents another step in the evolution of workers' compensation towards the unification of medical care.

The concept of universal care, 24 hour care, single stop shop, etc. has been floating for a couple of decades now with very little progress.

But the passage of the Affordable Care Act, the signing of HB 1 back in February 2009, and other Federal health related laws and regulations including ERISA, have accelerated the fusion of workers' compensation medicine and general health medicine. Outsourcing MPN oversight to a health care related agency is just another step towards this outcome.

On another note, the First District Court of Appeals (1st DCA) ruled yesterday that the limits of Labor Code section 4656 apply to benefits received by a public safety officer (police officer in this case) under Labor Code section 4850.

To the uninitiated, 4656 essentially limits temporary total disability indemnity to 104 weeks (though there are exceptions) from the start of the first payment. 4850 gives public safety officers a salary continuation benefit in lieu of temporary total disability indemnity (i.e. full weekly salary rather than the capped TTD weekly benefit) for 52 weeks.

The net amount to the injured officer can be dramatic.

And the cost of that benefit can also be dramatic in comparison to TTD.

The 1st DCA, in County of Alameda v. WCAB (Knittel), No. A135889, concluded that salary continuation benefits paid to Alameda County Deputy Sheriff Bryan Knittel counted toward the Labor Code's 104-week limit on payments for an injury causing temporary disability.

Police officer's associations are upset, arguing that giving public safety officers three years of benefits will "in many circumstances allow them time to recover and get back to work." Cutting off benefits after two years means that officers have less time to recover, which can effectively "force them out of the job and onto a disability retirement," thus forcing these people onto the public disability roles.

There are many scientific studies regarding disability status and return to work.

If a claimant isn't back to work after two years of being off work, they aren't returning.

That's pretty much the bottom line.

Time to move that person to the permanent disability roles.

Medical networks and public safety benefits - the complex world of work comp is ever evolving, constantly changing, and continuously entertaining.

Carrier Gets Lesson When TD is NOT TD

Occasionally you will see me rant here over what I consider illogical claims handling decisions. This is one of those rants where a case went all the way to an appellate court over $64.71 - and of course the carrier lost.

The case is Meeks Building Center et al. v. WCAB (Najjar), No. C065944, 06/26/2012, published.

Salem Najjar sustained a cumulative injury to his low back, neck and left shoulder in June 2007, while he was employed as a paint sales associate at Meeks Building Center. Najjar continued to work unrestricted at his usual job activities despite his injury.

The carrier, Zurich American Insurance Co., asked Najjar to undergo a qualified medical evaluation with Dr. Anthony Bellomo on Sept. 11, 2007. Zurich paid Najjar $64.71 to reimburse him for wages he lost to attend this evaluation, in accordance with Labor Code Section 4600(e)(1).

4600(e)(1) states:

When at the request of the employer, the employer's insurer, the administrative director, the appeals board, or a workers' compensation administrative law judge, the employee submits to examination by a physician, he or she shall be entitled to receive, in addition to all other benefits herein provided, all reasonable expenses of transportation, meals, and lodging incident to reporting for the examination, together with one day of temporary disability indemnity for each day of wages lost in submitting to the examination.

In March 2009, Najjar began collecting temporary disability benefits. Zurich stopped making these payments in September 2009, based on the 104-week limitation period in Section 4656(c)(1).

4656(c)(1) states:

Aggregate disability payments for a single injury occurring on or after April 19, 2004, causing temporary disability shall not extend for more than 104 compensable weeks within a period of two years from the date of commencement of temporary disability payment.

Zurich argued that the 104-week period began in September 2007, when it paid Najjar the $64.71 for going to the medical evaluation.

A workers' compensation administrative law judge actually agreed with Zurich (kudos to the defense attorney arguing before the WCJ), and Najjar petitioned for reconsideration.

The Workers' Compensation Appeals Board ruled that the payment mandated by Section 4600(e)(1) was not a payment of temporary disability within the meaning of Section 4656(c)(1) and did not begin the 104-week limitation period.

The 3rd District Court of Appeal upheld the WCAB's ruling, noting what I thought was obvious - there is a distinct difference between the underlying purpose of 4600 and 4656. 4600 is all about medical examinations. 4656 is all about temporary disability.

A contrary conclusion, the court said, "would seriously disadvantage a worker in a case such as this one, where the injured worker continues to work through injury and does not suffer an incapacity to work until much later in the process." It would also "permit the employer or insurer to artificially trigger the cap period on temporary disability benefits by setting a medical-legal evaluation," which, the court surmised, "cannot have been the Legislature's purpose."

It was a good attempt by Zurich, but illogical nevertheless. Apparently relying on case law where a different result was obtained, Zurich failed to note a significant difference which was pointed out by the 3rd DCA.

In the two cases cited by Zurich (Mt. Diablo Unified School District v. WCAB and in Brooks v. WCAB), the court noted, the applicants were off work due to their injuries and receiving wage replacement benefits under the Government and Education Codes. Because these benefits served the same purpose as temporary disability benefits under the Labor Code, they were deemed to have triggered the 104-week limitation period of Section 4656(c)(1).

In the zeal to contain costs the carrier once again reinforces a negative public perception of insurance.