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 Reasonable?

In Florida that state's Supreme Court ruled that the limitations on attorneys fees was unconstitutional, reverting the system back to a "reasonableness" standard until the legislature can come up with something better.

The attorney for Marvin Castellanos in that case had to overcome between 13 and 16 different defenses raised by the carrier for employer Next Door, Inc. in order to secure a mere $822.50 in benefits.

Under Florida's fee statute, that meant counsel was entitled to an award of $164.54 for 107 hours of work.

The month after Castellanos, the Utah Supreme Court struck down its workers' compensation attorney fee schedule as unconstitutional, leaving attorneys free to charge any "reasonable" amount for their services.

Utah's workers' compensation attorney fee schedule had similar rigidity as Florida's. The Utah court found that only it could regulate the practice of law, so the restrictions were deemed unconstitutional.

In contrast, New Hampshire doesn't have an attorney fee limitation, relying on the "reasonableness" standard.

So the New Hampshire Supreme Court ruled last week that maybe a $4,138,200.90 fee was not reasonable when the hourly rate would have been $79,369.59, but that the value of the unsettled future medical care needed to be taken into account in a "reasonableness" determination.

Thomas Phillips suffered injuries in an on-the-job accident that left him a quadriplegic.

His employer's comp carrier disputed his claim, and the New Hampshire Compensation Appeals Board determined that the carrier was not liable for benefits to Phillips because the carrier had not received timely notice of his claim.

The state Supreme Court reversed the CAB's decision and remanded the case.

On remand, the CAB ruled in favor of Phillips and awarded him total disability benefits.

Phillips then requested an award of attorney fees, and he introduced evidence of his fee agreement with his attorney. The agreement provided that the attorney was entitled to a contingency fee representing one-third of any medical, indemnity and impairment benefits that Phillips may obtain.

Based on the award he got from the CAB, Phillips said his attorney was entitled to $4,138,200.90.

The carrier conceded that Phillips was entitled to a fee award, but it protested the use of the fee agreement as the basis for such an award. The carrier argued that the CAB should award a fee only for reasonable time expended, at a reasonable hourly rate, and reasonable costs incurred for proceedings before the CAB.

The CAB awarded Phillips $79,369.59 — an amount equal to the hourly rate he would have been charged as set forth in the fee agreement had he elected to be charged on an hourly basis.

The New Hampshire Supreme Court on appeal sent the matter back to CAB because it did not include the value of future medical (which isn't settled via lump sum).

"Absent a clear intent by the legislature to exclude future medical benefits from consideration in an award of reasonable counsel fees, we believe that a categorical bar excluding them from consideration cuts against the broad remedial purpose of the Workers' Compensation Law," the court said. Thus, the CAB erred when it ruled otherwise.

The case was In re Appeal of Phillips, No. 2015-0218, 06/28/2016, published.

Broker Schmoker Rebuttal

My last post before the holiday weekend was "Broker Schmoker."

The theme was just because a broker (or for that matter a lawyer or risk manager) was involved in the configuration of a work comp program for an employer with 500 workers and a $20 million payroll, doesn't necessarily mean that issues of deceit, corruption or cheating could be discounted.

My post was in response to the news that pending before the California state legislature is AB 1922, by Assemblyman Tom Daly, D-Anaheim - the insurance industry's answer to the Equity Comp scandal, where Berkshire Hathaway subsidiaries, California Insurance Co. and Applied Underwriters Captive Risk Assurance Co. were ordered to cease and desist from selling the program because contract documents were not filed with, nor approved by, the Department of Insurance.

My viewpoint is based on personal experience in the work comp industry negotiating coverage for employers, from the earlier bid rigging scandal, from the all too often news story of a broker stealing a client's money (by failing to pay it to the underwriting carrier), and news of other nefarious dealings where fancy terms were used to hide risk transactions to escape DOI scrutiny.

"Broker Schmoker" touch a couple of nerves, and sent one insurance agent over the top. He protested to my post by canceling his membership to WorkCompCentral.

So I asked him to give me his viewpoint and state his case. And he did!

But, it turns out that my post was just the tipping point. This agent had taken one too many punches from the media and was done with it.

Here's his response, edited to eliminate personally identifiable information since I don't have his permission to publish it (I asked but he had already taken off for a vacation).

See if you agree:

**********

David,

Thanks for reaching out.

I will be brief for now, as I am cleaning up a few things, and adding a few days off to the long weekend.

First, on the Equity Comp issue ... my opposition to the selling this product is well known in the agent community that I serve.  But, probably not for the same reasons that the Insurance Department of California is asserting.   Have you read the Equity Comp contract?  If so, I suspect you could find countless issues to write about before you get to agents.

As mentioned, even though I advise against selling this product, I disagree with the Department of CA on the reasons they are shutting it down.  It is a Single Cell Protected Captive.  Does that mean that all Single Cell Protected Captive Managers will get cease and desist orders?  

On the issue of agents, your blog may have been the tipping point.  Agents have been getting dismissed or criticized from the work comp blogosphere and elsewhere.  In just the past few weeks, Bob Wilson posted that, "most agents are more interested in getting the best doughnuts at the Chamber of Commerce  breakfast."  His perception of agents is probably why not a single current or former agent was invited to join the "National Conversation" on work comp.  In my opinion, excluding agents was not only ill informed, but creates barriers to achieving the group's objectives.

Then, I noticed that the WCI 360 "Agent Track" in Orlando next month does not have a single current or former agent presenting.  They put NCCI in charge of managing the "Agent Track."  That decision exemplifies the lack of understanding of agents and the work they do.

And, Mark Walls is going to give the "State of the WC Market" to an agent audience at the conference.  What does he know about the role and responsibilities of agents? Agents will care about how the State of the Market affects their client and their agencies.  Not as he mentioned in a May, 2016 Insurance Journal article on the State of the WC Market, "employers with good loss control and return-to-work programs will find more insurance companies wanting their business."  Agents know that already, and don't want to pay money to hear that dribble. 

So, "doughnut eating, commission" hounds in combination tweaked me, and precipitated an "enough is enough" position.  Yes, I stipulate that there are some bad agents, just as in any profession. However, too many Bloggers, some of which have never actually done anything in the work comp field but browse the internet, copy material and paste it elsewhere, and attend conferences, are trashing or dismissing agents, which I find offensive and just plain wrong.    

Agents have two national associations along with 50 state chapters.  It is long past time for the associations to redeploy some of their resources and push back against the bloggers that don't understand agents and trash them.  In addition, almost every employer has an agent, but not very many have a Blogger, "Thought Leader" or social media maven to assist them.  Agents need to get engaged and point out that many of those who are criticizing them are just empty suits and talking heads that have never sat across from an employer with serious and complex problems.  Or, managed those complexities and assisted business owners to avoid financial devastation.

Taking agents out of the loop takes away a resource that can't easily be replaced.  Perhaps, the Blogger community can hit the streets and get engaged with employers where the hard work gets done.  However, I suspect it is far easier to talk about what needs to be done than to actually do it. 

Plus, I hear Bloggers get to work in their underwear and eat Cheetos all day.  Hey, wait a minute ... that sounds good.   

**********

So there you go - agents in general do good things for their employer clients and the workers of those businesses, which is why you should nominate agents and brokers who do good for a Comp Laude Award. 

What better way to tell stories where agents and brokers have prevented financial devastation? 

Nominations have been extended to July 10, so to paraphrase the B-52's "Butter Bean": "don't you wait, don't you linger, Comp Laude will slip through your finger!"

For the record, I don't work in my underwear and don't like Cheetos...

The Ignorant Aging

I'm not an AARP member ... yet. Maybe I should be - heck I'll be 60 in just over 3 more years.

AARP has a big section on their website about working at age 50 and over. It details how to find jobs, what to say in interviews, how to assess benefits, talks about unemployment, self-employment and small business.

They say nothing about getting hurt on the job.

Dad

Yet, this demographic, the "aging workforce," has been specifically catalogued by the workers' compensation underwriting and claims community as a particularly high risk due to comorbidities, fragilities, and other age related ailments that can manifest at an instant with or without physical provocation at the work place.

It is also this particular demographic that is ill prepared to NOT work - the baby boomer generation still lives pay check to pay check; in other words they MUST work...

Yet, AARP (nor most other organizations) does absolutely no education to their constituents and members about work place injuries, about workers' compensation or how the system works, leaving this demographic especially vulnerable to surprise, or worse, abuse.

I guess this isn't really a surprise. Nearly no one educates the working population about workers' compensation, or any work injury program, until it's too late, after an injury occurs (or is claimed).

Many states have laws that require the "employer" to provide workers brochures and notices about workers' compensation, but frankly, no one reads those. They are textually dense, full of words that require a dictionary, have little relevance to the "now" and besides, everyone remains in denial about work injuries until they happen.

Then it's too late.

We talk a lot about national discussions - what should workers' compensation be, how can it be improved, how do we do a better job of taking care of the industrially injured ...

Yet we do a miserable job of public outreach.

Why would anyone give a rat's arse about changing anything if they have zero idea of what is to be changed in the first place?

Gaining knowledge about workers' compensation is sort of like learning about sex as an adolescent - most parents are loath to breach that sacred topic, and if they do then it's in shrouded terms of embarrassment; so we learn by doing, sometimes with terrible consequences...

So it is with workers' compensation: expectations at time of need/desire fail to match reality.

And we shouldn't sugar coat the workers' compensation story either.

When my son began adolescence, I literally hit him in the head with a box of condoms and told him my two golden rules: don't be a dumb arse, and beware the power of female genitalia (I used more profane adjectives...).

That lesson was reinforced from time to time with similar provocative, yet effective, communications.

Talking about what work comp should be is probably a good discussion. The "Grand Bargain" has veered off course I think.

But more important is telling the story of comp, in real and frank terms, to those most affected: workers, and the employers who pay the bills.

We can start with the various organizations that communicate regularly with at risk demographics, like AARP.

Hit them in the head with the proverbial box of condoms...

**********

On Tuesday, August 25 at 11:15 ET I will moderate a panel at the WCI Conference in Orlando, FL on the topic, "The Image of Workers’ Compensation and What Industry Can Do About It." Here's my panel:

Deborah L. Michel
Executive Vice President of Major Accounts,
Liberty Mutual Insurance
President,
Helmsman Management Services, LLC
Warrenville, IL

Rebecca Shafer
President
AMAXX Risk Solutions, Inc.
Hartford, CT

Michael Grabell
Journalist
ProPublica
New York, NY

Bethany Boggess, MPH
Research Coordinator
Workers Defense Project
Austin, TX
Part of the image has to include acknowledgements by the industry of the perceptions of work comp. I hope you're able to join us.

An Innovative State Fund

The California Department of Insurance lowered its advisory pure premium rate again this year, and many insurance companies writing workers' compensation in the state have followed along.

Side note for the uninitiated - the DoI's rate is not mandatory nor obligatory; insurance companies in California are free to charge a base rate but most tend to follow the advisory rate to remain competitive in the market.

The pure premium rate is not what a company actually charges either. The pure premium rate accounts only for anticipated losses for the year, and the costs of administering and settling claims. It does not account for administrative expenses or other overhead costs.

The rate is not to be confused with the actual premium charged an employer. The rate is just one factor. An employer's experience (i.e. how many claims are made over time) and the amount of payroll and job classifications account for how much an employer is actually billed.

The Workers' Compensation Insurance Rating Bureau, which gathers all of the carrier data in California for analysis and advisement on rates (among other duties) says that frequency (i.e. the number of claims) keeps going down, severity (i.e. how much is paid on each claim) keeps going down, and safety keeps improving, all of which dictate less expensive insurance for employers.

For employers, this is all good news, so long as the insurance obligations to take care of their workers injured on the job are performed (I know, there are going to be comments that the insurers aren't keeping their promises - but that's not what this post is about, so don't tap that keyboard just yet...).

The State Compensation Insurance Fund has really wicked up the pace, however, by announcing a monumental 9.5% drop in its pure premium rate.

Compare that to the average rate drop filed in California, which is about 3% for the year (give or take a few basis points).

Perhaps even more important though is the State Fund has asked the DoI to approve a new tiered rating plan, increasing the tiers from four to seven.

The purpose, says the State Fund, is to smooth out pricing fluctuations from year to year for its policyholders.

This is huge.

The State Fund, though it has been losing market share (albeit, not unintentionally), is still by far the largest workers' compensation carrier in California (and one of the largest in the nation) because it's core market is by far the biggest market: small business.

Small business is no different than small households - many generally live, essentially, paycheck to paycheck, month to month, season to season. In other words, cash flow is the biggest challenge for small business.

What drives small business owners nuts is not being able to adequately plan for cash outflow. Surges in expenses, particularly expenses that tend to be perceived as fixed, like insurance, cause panic and anxiety. The year over year double digit workers' compensation insurance inflation in the early 2000s is what created the havoc that resulted in SB 899 in 2004; it wasn't the fact of inflation, it was that inflation was so radical (40+% year over year)!

And the State Fund plans to revise how it assigns employers to tiers by taking into account the wages that an employer pays in comparison to average wages paid by similar employers in the same industry. An employer with a higher ratio between the average annual wages associated with the policy and the average annual wage for the industry would be assigned to a better tier.

In addition to this new rate plan, the State Fund is also planning a one year transition because some employers will in fact see rate increases - the transition plan is designed to ease those employers into the new tier, which officials believe will be more fair to more employers and will flatten the payment obligations.

I think we're seeing a new State Fund, one that is much more customer focused and innovative. Does the State Fund have issues and problems? Sure, we can find fault in nearly any business, particularly insurance companies. But State Fund has been stepping up its game.

It's not easy to stand out in work comp insurance. State Fund is showing the others how to do so.

Good job folks.

Culture and Claims

Jon Pearson, Director of Life Path Services for QLI, a spine and brain injury rehabilitation service, gave a wonderful presentation about returning folks to a new normal during the recovery from injury at the Self Insurance Institute of America's Workers' Compensation Executive Forum yesterday.

Part of what he talked about was the team at QLI and how crucial they were to the success of the treatment model.

"If people don't want to work there," Pearson reflected, "then who would want to be a patient there?"

That observation goes well beyond QLI's business model.

Indeed - later in the day a`member on the panel for "Out Front Ideas: How successful Partnerships enhance Your Workers' Compensation Program" noted that claims adjusters have the toughest jobs in workers' compensation because they are expected to deal with their clients (injured workers) with empathy and compassion, yet meet conflicting production and financial goals.

The industry is currently fretting about the drain of talent on the front ends. Attracting, recruiting and retaining good claims handlers is at the top of every work comp adjusting house executive's lists.

How much does the internal culture of a claims house affect the quality of the claims handling? How many people are unwittingly thrown into a claims management situation where the handlers don't want to be there? How much of that contributes to a state's good, or bad, claims ratings and experience?

The Workers Compensation Research Institute recently released survey results of client satisfaction with workers' compensation medical care comparing results across 14 states. The middle of the country scored the highest by far, regardless of whether there were fee schedules, treatment guidelines, etc. Florida was miserably at the bottom.

How much client satisfaction was not the product of the actual medical care, but really of the claims handling experience? After all, the injured worker has to go through the claims handler first to get to the medical care provider...

Obviously self insured entities have much greater say in their claims handling. They competitively seek bids from claims houses, and one of the overall messages coming from the SIIA conference is, essentially, you get what you pay for in claims handling.

So while pricing the job is a consideration, the quality that is provided has a much bigger role; what Out Front panelist Stu Thompson, CEO of The Builders Group, referred simply to as, "value."

We all know of claims handlers who are besieged with extraordinarily high case loads. And there are others that have more reasonable loads.

Kevin Confetti, Deputy Chief Risk Officer for the University of California, said his claims staff's maximum is 100 files per adjuster. He claims very high satisfaction ratings from clients, and good claims experience numbers. I didn't ask him if his handlers like working there, but I have to assume that being a part of the California University payroll isn't that bad of a gig.

The reality of workers' compensation is that the claims process has the most impact: perceptions, finances, expenses and ultimately outcomes are all tied to how well any particular claim is managed.

My take from this week's seminar education is that the claims experience is intimately connected with the happiness of the claims staff. The quality of the service, i.e. the value, is ultimately the product of how well the claims handler deals with the client; from setting expectations up front, to communicating through out the process, to ensuring obstacles are smoothed.

A disgruntled, unhappy, under-appreciated, unmotivated claims staff isn't going to return value.

If the claims staff doesn't want to work there, then would I want my work injured to be clients there?

But, if your claims staff does like their work, and that is reflected in good outcomes, then tell the world about it with a Comp Laude nomination...

Summit Notes

Bob Wilson from workerscompensation.com has posted links to the notes compiled by David Langham arising out of the 2016 Workers' Compensation Summit held in Dallas last week.

The notes are broken down into five categories; plagiarizing Bob's post hopefully with his permission:

Summit Notes – These are generalized notes of comments made during our two days of discussion. They are generally presented in the overall order they were made.

Friction Points – these notations were part of a discussion about those transactional points that slow down, increase the cost or potentially disrupt the claims process.

Paradoxical Incentive Points – these notes are related to discussions where incentive/payment structures may not be in line with desired outcomes.

Regulatory Points – a great deal of energy went into discussing regulatory burdens and oversight as related to workers’ compensation. These are broken out for your benefit here.

Imperative Issues* – These are the final points that the group identified as pain points or problem areas within workers’ compensation. *IMPORTANT NOTICE REGARDING THIS FINAL DOCUMENT: This is simply the release of a rough outline. The group will be working further on these points, and is currently undergoing a survey process to prioritize these particular issues. Once that is complete, we plan a more formalized document that contains a “Statement of Purpose” as well as extended commentary surrounding these points.

Bob's blog post where you can not only download these documents, but also leave comment for aggregation and inclusion is http://www.workerscompensation.com/compnewsnetwork/from-bobs-cluttered-desk/23908-the-notes-from-the-workers-comp-summit-now-it-is-your-turn-to-join-the-national-conversation.html.

Summit attendees are encouraging comment and participation regarding these notes and documents. Please comment either at the bottom of Bob's post, or in any of the LinkedIn groups where these notes are available and/or discussed.

Thanks to Bob Wilson and David Langham for putting the Summit together and getting things moving. Thanks also to all of the participants for taking time to participate with no other agenda than hoping to improve work injury protection systems.

Does It Matter?

Dallas, Texas, is where a large diverse group of workers' compensation interests have gathered to start a national conversation about what work comp should look like and act like in this new economy.

Whether work comp is even relevant any longer is on the table too.

The issues are voluminous, the opinions diverse; solutions amorphous.

Yesterday I opined that ultimately the state of workers' compensation will return to entropy - the natural order is chaos; we can corral competing interests for some period of time before elements escape that order and operate outside the mean.

That would explain why the bigger jurisdictions seem to "reform" workers' compensation on a rather regular cycle.

I also reviewed the theory that more of decision-making is based on irrational thought, rather than logic.

This explains perfectly why workers' compensation is the way it is. Work comp is a pure political animal. Politics is all about emotion, not so much about logic.

For instance, Kentucky Gov. Matt Bevin this week replaced all seven members of the state’s Workers’ Compensation Nominating Commission in an executive order Monday "… to achieve greater economy, efficiency and improved administration of the Kentucky workers’ compensation system.”

But that order is clouded in political machinations that appear to be more about personal vendettas than the will of the public.

Bevin, a Republican who took office in December, called into question several actions taken by his Democratic predecessor, Steve Beshear, during a speech on April 19, targeting the Department of Workers' Compensation Claims. Bevin noted “two major potential irregularities within the workers’ compensation branch,” pointing to settlements for volunteer firefighters and requisition of defense attorney services.

The Workers’ Compensation Nominating Commission is the third state board that Bevin has overhauled or purged of members appointed by Beshear, according to a report by the Courier Journal.

Curiously, Beshear’s son, Kentucky Attorney General Andy Beshear, filed a lawsuit against Bevin last month, saying the governor acted illegally in cutting higher education spending without legislative approval.

That administrative law judges require political appointment in the first place is not a rational personnel management process; that any aspect of a public service is held against unrelated political maneuvers is the entropic consequence.

The Kentucky story is just one example in an endless supply of political emotion overriding logical decision-making. It is a demonstration of how outliers get created.

And when we really get down to it, workers' compensation itself operates outside the mean. The vast majority of people do not get hurt or ill at work. So, work comp itself is an outlier.

I wonder then, whether discussing what to do with work comp, or how to make it more effective, or any other discussion relative to such a minor subset of existence, really even matters; because what we're talking about is restoring order to a very minor subset of the greater social order.

But as we see in the theory of entropy, chaos spreads, eventually infecting all of order - and when all order is dislodged then we have anarchy.

The origins of work comp are rooted in anarchy. Work comp was intended to bring order to the chaos that can occur to business, to labor, to society, when people get hurt performing labor that results in financial ruin for the worker, the business and perhaps the community.

So, I've answered my own question. What we're doing in Dallas, what others are doing in other discussions around the country (and world frankly), is necessary. The containment of anarchy starts with the minor subsets/outliers because entropy is infectious.

Work comp, or some system of work injury protection, is necessary for the economy and greater good. Very few will have to avail themselves of "the system" but it must be available when needed.

And it must be effective and responsive.

That's why we're in Dallas.

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.

Assume Responsibility

I know I'm going to get flamed for this blog post, but I have always committed to telling the story the way I see it.

I have taken on insurance companies and their executives, doctors and other medical vendors, attorneys and the legal profession.

Politicians of course haven't escaped my vitriol, and employers also haven't escaped criticism.

The only workers' compensation population that hasn't been met with cynicism has been injured workers.

There's two sides to every story, as they say. 

Most in the work injury protection schema do good deeds most of the time for most people. There are some times when things go awry, either intentionally or negligently. I get that. There are also laws and regulations that don't work effectively, or have contraindications which contaminate too large a population. I get that too.

Workers' compensation, or any form of work injury protection system, requires a lot of people to synchronize. Synchronicity is not easy. Sometimes the harmony goes awry. That's how life is.

Recipients of system failures get a raw deal. Sometimes it's corrected. Sometimes not. Sometimes the correction doesn't meet the expectations of the recipient and other times it exceeds expectations.

Most move on, find their new paths in life and return some positive energy back to the world. They aren't in the same place they were before injury, and certainly it's a struggle to shift directions, particularly later in life and particularly if unprepared financially and emotionally for an alteration to the expected path.

The vast majority do move on, find positivity in life, strive to make the most out of it, and refuse to let life get in the way of living.

However, there's a vociferous militant minority of the injured worker population who have made it their mission to inform the world of the injustices imparted on them by "the system" and all its nefarious participants.

They have ridiculed most all work comp sectors named above, but have spared me for the most part. 

I'm sure that will change now.

Here's my gripe: these unmodulated venters are all about negativity, and offer nothing to resolve either their own issues, or the issues facing the workers' compensation institution.

These folks have taken to the immediacy and vast reach of the Internet to let the world know about the work injury commercial complex; how all of workers' compensation is out to get them, and you too. They rail about injustice, and about conspiracy, profits, and ill will towards all.

They hijack award systems to claim, incorrectly and falsely, victory and acknowledgment.

Even after being adjudged fraudulent themselves...

If your opinion opposes their's, then crucifixion and burning at the stakes begins and doesn't stop until the witches are excoriated.

But never, ever, is there a solution suggested, or any attempt to make a positive change. 

Just victimization.

You may not choose to BECOME a victim, but you do choose to REMAIN a victim...

You all know who I'm talking about. I know you’re upset at bloggers, at TPAs, and a whole host of other people connected to the work comp environment, and this is fueled by your personal experiences. I completely understand your emotions and what you believe in.

You have drawn ire from people in the industry, but it's not because you are being vilified, or because they have a disdain for the injured worker with a voice, or any other malicious reason.

It is very simple - you offer nothing positive relative to change.

Anyone can complain. Few do anything to effectuate change.

Drawing attention to the negative does nothing to further the conversation, offers no solutions, provides no road map.

It’s easy to foment revolution, but revolution without offering a solution (and not nationalization of work comp or calling in the National Guard) simply ends with anarchy.

Some have gone as far as criticizing their own - people who are working hard at making changes in their own way. There is a visible injured worker population who are doing something POSITIVE. They have taken their rage, disgust, observations, and done something that helps others. It is long, it is tough, it is out of the ordinary - but it is effective, demonstrates a solution and one that will likely result in positive change as organizations review and study what is being done and then implementing it it their own systems.

It simply is not enough to complain. Everyone has a complaint. A complaint without a solution is bullshit. You may as well just dig a hole and hide because no one is going to pay attention.

Everyone knows that bad things happens in work comp and that there are profiteers off of the injured. That’s no secret.

So what are YOU going to do about it? 

Working outside of the system, criticizing others, denigrating the institution, doesn’t help anyone, anywhere, and in fact makes one simply a militant.

The answer is to work WITH the system. Everyone does it in their own way. They work, and work hard, with other people that WANT to make a difference understanding that this is not a one person job; hell, it’s not even a job for a community, but a job for an industry of people.

Maybe I call them as I see them, but I also work with the top leaders to help with change.

It doesn’t happen quickly. Heck, sometimes it doesn’t happen at all.

But other than publish vicious attacks, why not study the system, study the law, the regulations, and PROPOSE solutions that a politician or regulator or chief executive, or any other leader can endorse and work with?

What has happened, through this militant virulence is that your credibility as an activist is suspect because you attack everyone (and I'm sure to end up on that attack list because of this post).

Here's the deal: Too many people don't want to assume the same level of responsibility that they presume for their rights.

If you want change then make change happen with action. Actually DO something POSITIVE. Blogging, calling others names, denigrating the institution - none of that matters. 

What's YOUR solution? How are YOU going to step up and BE change?

They're Off!

Some of my friends and colleagues are traveling to or are at the NCCI Annual Issues Symposium in Orland, FL.

The AIS is the national work comp data wonk-fest. Lots of information about how the business of workers' compensation insurance is doing around the country. It's an important event because without insurance, work comp can't function. Even the last couple of monopolistic states performance is measured, and that's interesting because it provides a comparison of private capital versus public capital.

I won't be there though. Instead my wife and I are headed to Kentucky to watch the 142nd running of this race.

We'll see the best that KY has to show of course, and thanks to the good folks at Ascential Care in Lexington for helping put our trip together.

The Artist Known as Dwight (double amputee from 2 separate work injuries 18 months apart) designed and made our Derby wear.

What we will see - the spectacle, the money, the party - of course, is in stark contrast to the reality of the rest of the state. High unemployment in the coal mining region and one of the highest rates of opioid addition in the nation bespeak a state with a very fragile economy and susceptible population.

In addition, as our Special Report on KY demonstrated, that edge of poverty is made even more sharp when a work injury occurs.

KY has also garnered the attention of the Workers' Compensation Research Institute, which has added the state to its CompScope reporting.

Last Friday the state Court of Appeals ruled that an injured worker does not have the right to have her father attend an independent medical exam, and as a consequence of state law, forfeits her temporary total disability benefits for the period of refusing the IME.

Oh, and it's the state's 100th anniversary of its work comp system.

Perhaps its coincidental that my attention is drawn to KY with all of this, perhaps it is serendipitous.

Maybe it's unfortunate.

In the face of such troubles though The Derby and horse racing in general is something KY is proud of and the citizens put forth their best while the world watches.

I'll learn how to fit a bowtie, Anne will wear her Dwight hat, we'll drink mint juleps from silver cups and 20 horses will thrill thousands for a couple of minutes. It's a once in a lifetime experience.

So we're off to the races...

Don't Stand By

Earlier this year WorkCompCentral published "The Uncompensated Worker: Financial Impact of Work Comp on Households" which reviewed from a very broad perspective the effect an industrial injury has on the prototypical American blue collar worker, "Tim."

Today we release follow up reports on Kentucky and Florida.

Each report compares two different injured workers - one who has a relatively minor work injury and the other a more severe lost time injury. The data used to build these profiles is readily available, the outcomes shocking.

Perhaps more shocking is the complete lack of concern by Florida state officials - neither the Florida Division of Workers' Compensation or elected officials have any idea what the financial impact of a work injury has on the state's workers. Said one official to WorkCompCentral in response to an email inquiry, "The Division has not received a request for analysis (studies) of what injured workers receive vs. their pre-injury take home pay, nor are we aware of any other request made of any other executive or legislative agency in Florida."

I suspect too many other lawmakers and regulators are likewise disconnected.

At least California's regulators and lawmakers commission studies occasionally on the adequacy of benefit, albeit perhaps without much persuasion.

The Uncompensated Worker special reports demonstrate that even a minor work injury can have long term negative consequences for household income, and show how easy a work injury can put a family under the poverty line.

The conversation needs to open up. We, as workers' compensation professionals, certainly don't make the laws and regulations, but we have detailed insight and information about what actually occurs in the implementation of them.

Yesterday I highlighted an article in the IAIABC Magazine by Berkeley researcher Frank Neuhauser. Essentially Neuhauser opined that work comp isn't for everyone, everywhere, all of the time. The economy has changed. Social welfare systems have changed. Expectations have changed.

Laws have changed...

As a consequence, per Neuhauser, we spend too much for too little.

The WorkCompCentral series of reports (which will be ongoing with a few more states to be reviewed) calls into question the adequacy of benefits across states.

The purpose of workers' compensation is to ensure that neither employers nor their employees meet financial ruin in the event of a work place injury.

But work injuries account for very, very little of the overall risk any longer.

We have to ask ourselves, and be truthful with ourselves - in the grand scheme of things, is workers' compensation really relevant any longer?

I'd argue that some form of work injury protection scheme is, indeed, very relevant and very necessary. To me, and I believe this is well supported by various studies, a properly designed and functioning work injury protection scheme creates safer work places, provides stability for businesses and keeps the economy moving by minimizing production losses when a worker can not do the work, either temporarily or permanently.

But what these reports tell me is that the way we provide work injury protection is no longer effective. Businesses complain it costs too much, and as we can see from these WorkCompCentral Special Reports, there is insufficient protection provided workers, and those living paycheck to paycheck are disproportionately affected.

IAIABC has opened up the dialogue about work comp adequacy with conversations around the nation. Other groups are also talking about whether we are meeting our social obligation.

The work comp industry, from my experience, has lots of caring, dedicated people who want to make a difference, want the protections promised 100 years ago, and will facilitate whatever is necessary to bring the system into the 21st Century.

As it stands now, though, all we can do to help mankind isn't enough, but we can lead.

Re-engineering of the Grand Bargain is a timely, and necessary, conversation. Opt-out is part of that conversation. Recruiting and retaining Millenials is part of that conversation.

We collectively have the expertise. With that expertise we will be a part of the solution and will drive the conversations into action.

I'm convinced that we, as an industry, have a mission far greater than just administering benefits. We are part of the new social order.

The Uncompensated Worker reports are free. Registration or login required.

Download the Kentucky report at https://www.workcompcentral.com/special-report/file-preview/pdf/5/wcc_referer/special_reports;

Download the Florida report at https://www.workcompcentral.com/special-report/file-preview/pdf/4/wcc_referer/special_reports.

Open Rating Rant

I was talking with Michael Standing, CEO and president of AIM Mutual Insurance Company out of Massachusetts - preparing a guest spot for the Seismic Shifts presentations last year.

("Seismic Shifts: An Essential Guide for Practitioners and CEOs in Workers' Comp," was a special WorkCompCentral report prepared by Peter Rousmaniere last year that investigates commercial opportunities in a shrinking workers' comp industry.)

Standing and I were making some small talk about the market and he floored me when he told me that Massachusetts, a state of about 6.75 million people, and only $1 billion in workers' compensation premium, had 290 workers' compensation insurance companies competing for business.

California, by contrast, has almost 39 million people, a gross written premium of nearly $16.5 billion, but only 218 carriers, many of them sub-carriers or affiliates of larger companies, so the real number of carriers is even smaller.

What's wrong with this picture?

In 1993 "open rating" became the new business model in California. Before the open rating law, all workers' compensation insurance had to meet a minimum pricing standard. In other words, there was a floor on rates - insurance companies could not quote or charge less than what the Department of Insurance said could be charged.

I've ranted before about this.

Before open rating, there were well over 350 insurance companies. They competed on quality of service, the experience rating modification factor (aka "ex mod") being the determining distinction between carriers - the better serviced claims, the lower the ex mod, the less expensive the insurance.

This promoted safety, prompt claims handling, and frankly BETTER claims handling.

Since 1993, however, the standard has deteriorated to least expensive claims handling (which is ironic given the cost of claims has increased exponentially since then, in particular the cost containment component of claims handling).

Open rating was supposed to increase competition.

The opposite has occurred - it has, to the great detriment of the policy purchasing employer population completely stifled competition.

And worse, has focused the industry incorrectly on cost containment rather than quality performance.

At least that's MY opinion.

Ought to be yours...

Carrot? Or Club?

There's a trend percolating in workers' compensation about incentive based medicine.

The basic theory of incentive based medicine is to reward physicians for ensuring good, quality care is provided injured workers/patients to promote faster recovery, less disability, return to health and ultimately return to work.

In theory this all sounds good.

But as with anything that we think is a good idea, others will abuse the trust, and try to steer the world towards their special interest profit motive.

That's a concern that has arisen with the latest news that certain networks have either deployed or are developing economic profiling programs about physicians in their networks.

Yesterday, WorkCompCentral News reported that the Harbor Health Systems network and MPNs for Zenith, Liberty Mutual and the State Compensation Insurance Fund are using economic profiling to determine the top-performing doctors within their networks, and have promised to reward the best performers with extra compensation.

It is also reported that Coventry Health Systems says its "in the preliminary stages" of developing its own incentive program.

According to the news story, State Fund has a separate MPN provided by Harbor that does not offer financial incentives. But another Harbor plan offers financial rewards to doctors with the best track records for "efficiency."

Zenith's plan says incentives "may be provided," and Coventry says it hasn't determined what incentives, if any, will be part of its program.

The Harbor plan says that the disability rating at case closure is one of the factors that will affect a doctor's efficiency rating under the incentive programs. The duration of the claim, the duration of the medical treatment and the costs of the claim are also factors.

According to one source who wished to remain anonymous, in addition to looking at the direct cost of the treating physician, other factors was whether an attorney was on the case and how long the case had been ongoing. This source is concerned that if he or his clinic does not comply with corporate directives on any one particular case that punishment will be delivered; in other words the economic profiling will be used as a club, rather than a carrot...

While the Labor Code expressly allows MPNs to do economic profiling and to offer incentive programs based on doctor performance, the plan administrator must file a description of the program policies and procedures with the Division of Workers' Compensation.

The question being posed is just how much of an incentive program is disclosed in the filings, and whether there are "back room" criteria not subject to public review.

The division of opinion to the story broadcasts a stark and wide understanding of the issues, of the plan, and whether performance based incentive plans should even be a part of the work comp schema.

Here are some of the comments posted thus far to the story:

"It is absolutely ridiculous that Harbor will only compensate at 100% of OMFS if physicians basically don't do surgery, don't order MRI, no meds and limit physical therapy to 6 visits. Anything outside of this regiment the physician gets less than OMFS."

*****

"Are we the only ones concerned? As a TPA, we deal with attorney selected MPN physicians. Many of these MPN physicians even address their progress reports to the attorney with a CC to us, the TPA."

*****

"I agree that the insurance company should not be allowed to incentivize doctors, but when I read CAAA's response I laughed. 'They're supposed to be paid to practice medicine, not to improve the numbers of an insurance company's bottom line,' he said. Insert applicant attorney law firm name in for the insurance company in the previous sentence. That's been going on for decades."

*****

"Notice the outrage geared toward, 'will my client get a lower rating?" = 'will my fee be affected?' Rather, shouldn't the interest be whether the treatment was effective in returning my client back to work or preinjury status??? Or even, is this a provider who overbills, overprescribes or frequently requests treatment outside of MTUS, ODG or ACOEM?"

*****

Harbor Health posted a reply:

"Not only is there no connection to whether a doctor reduces the amount a care delivered to an injured workers, the model works quite the opposite from the concern expressed. A provider who delivers better health outcomes can in fact spend more on care than their peers and actually score in the top 20% of the benchmarking. This is because our model focuses on total outcomes; cost is only one of several factors measured and it is measured in the aggregate with medical spend, indemnity spend, and claims expense. A doctor can actually drive higher spend in medical if that investment results in better cure rates, reduced lost time, and reduced litigation."

*****

Frankly it's ludicrous that anyone has to provide any financial incentive to do the right thing, but this is work comp and at the end we only have human motivations to work with. I get it, and if the rules really will deliver better medicine, and the injured worker truly is benefited, then great!

However, transparency is really the question: One person's motivation is another person's deception ... there's a line of tolerance that defines disputes.

Jean-Louis Guillard, is a Swiss lawyer. He posted a thought provoking article on LinkedIn a couple weeks ago about ethics in business and that fuzzy line of tolerance.

"[T]he scope of the compliance or ethics message is somehow limited and the technicalities are hidden into legal jargon," Guillard writes. "'We do not offer bribes'. Indeed, but do you pay when asked?"

That same logic is applicable in reverse.

"We reward good outcomes."

Indeed, but who defines the "good outcomes," and do you punish for transgression from any particular corporate directive?

Monday Morning

It's Monday morning - contemplating this past week.

My daughter paid a visit to get some Southern California weather after testing Alaska winter for the first time. The sun cooperated.

And of course Mom died. It was reasonably quick. She was comfortable.

My daughter was fortunate enough to visit with her grandmother while still alive, albeit Mom was severely limited - but I could tell by the look in her greying eyes that she recognized, and appreciated, Nichole's presence.

And certainly my daughter appreciated getting those last couple of hours with her grandmother.

It was last Saturday when we visited. Mom gave me "that look." It said, "I know you, I trust you, you can feed me and I'll eat what I can." She did. I did. Mom couldn't speak. She was too weak to even grasp my hand.

But she grasped my heart. I felt it.

Of course, then Mom checked out Wednesday evening. I was scheduled to visit the next day so I went anyhow to take care of the various tasks that would need my attention at some point in time. Now or later, may as well be now.

I was too busy to feel grief.

Yesterday I took Nichole to Burbank Airport for her return to Anchorage. She packed her bicycle in a box and checked it through. I said goodbye at the TSA checkpoint.

Now, Mom is gone. Nichole is gone.

When I woke up this morning, though, workers' compensation was still here.

Over 30 years of exposure to workers' compensation; I didn't realize until now - I have personally witnessed nearly one-third of the life of work comp.

My naïveté at the beginning was understandable of course, but alarming to me now. Reform after reform brought, and took away, various levels of medical control, indemnity increases and limitations, guidelines, reviews, and other assorted points of special interest to lawmakers, who for the most part, have the same level of understanding I did 30 plus years ago.

There's been fraud busts, and new fraud to replace those busted. Insurance companies have come, more have gone.

Rates have gone up, rates have gone down. Somebody, somewhere, is always complaining - one person's outcomes based incentives programs is another person's benefit denial target.

Courts make decisions that find compensability when no one thought there would be, and other courts have denied claims where others felt it unfair and unjust.

There's talk of constitutional challenges, federal review, and general media criticism.

Alternative work injury programs are hypocritically criticized by the work comp cognoscenti using the very same argument points they say is wrong with traditional comp.

There are audits, but perhaps not enough. There are penalties, but perhaps not enough.

Someone, somewhere, is going to take advantage of something that no one else thought would make a difference, until it does make a difference, and then the special interest matter ends up back in front of lawmakers, who for the most part, have the same level of understanding I did 30 plus years ago...

I was sad to see Mom go, of course, but the press of estate business, and my regular business, has retarded the grieving process. I'm sure there'll be a point in the near future when a tear sheds.

I was sad to see Nichole go too. We're always sad when our children leave. But I'm quite certain I'll see her again, though likely not soon enough for either of us.

And then there's work comp. I don't think I'll ever have to say goodbye to this incredible institution, at least not before I die.

For all its faults, for all of its negative traits, work comp is incredibly attractive and complex.

I see in comp "that look," those greying eyes that grasp my heart.

We can't fix everything, and we can't fix everyone.

To me, it takes only that one case though, where someone is profoundly affected by unfortunate circumstances and the benevolence of those trained in the system to rectify and bring some solace ...

My heart ...

This past week brought some perspective to my life.

There will be other times when that happens as well.

In the meantime I have the constant of work comp. For as much as it changes, it remains principally the same as I knew it some 30 plus years ago.