My Lesson About Insurance

What did I learn at NCCI's Annual Issues Symposium?

I learned that the workers' compensation line in the property & casualty insurance business did much better than it has in the past 5 years - the overall national combined ratio for private carriers in the business is down to 101 based on calendar measures, and accident year measure is estimated to be 99.

Those are near perfect numbers indicating that the private carrier market is operating at almost perfect efficiency.

On top of that, investment gains were much more robust than previously forecast, with the work comp line ending up as one of the more profitable lines in the P&C industry.

Operating gains rose sharply, measured at 14%, up from 5.6% the year before and the second highest since 1997. These numbers were attributed to strong underwriting results (see above!).

NCCI reported that there was a 5.4% increase in written premium from the year before at $37 billion. The rate of increase was above the P&C average of 4.6%

With regard to investment returns, embedded yields were called "notably higher" than new money yields and return on surplus was reported at 10.3%. This is WAY better than past 5 years and was attributed to unexpectedly good results from Wall Street as carriers sold stocks and bonds for solid (taxable) gains.

Of course there was the caveat that equities comprise only about 20% of carrier portfolios so a strong bond market was key; but as was noted in the past the older  high yield bonds are being replaced with new low yield bonds, so the NCCI wonks are still conservative about calling this a trend.

Nevertheless the investment returns being reported were much better than previously forecast.

So, to summarize, this overall industry profitability occurred because of lower expenses, better than anticipated returns on stocks (not so much bonds) and lower resistance to increased rates and premiums.

I can already hear the objections from those who have some dislike of insurance companies, and I can certainly understand because it is sometimes difficult to have the warm and fuzzies for folks that take money from you and then seem to delay or fail to pay it back when something happens.

Fair enough - reality is that everyone at some point in time hates insurance, even insurance professionals. Insurance touches us at a very deep, emotional level - when we have a claim it is generally a moment when we are the most vulnerable and need the services or benefits.

Others decry industry warnings from time to time about threats to the industry and carrier profitabilities. But the reality is that this is America, a capitalistic economy. People in this country don't do things unless money can be made - profit.

The insurance industry and particularly workers' compensation, is heavily regulated, and returns on the line of business can be notoriously fickle with all sorts of unseen risks interjecting into balance sheet.

The truth is that insurance companies need to make a profit and generate a return on investment to shareholders. If they don't then shareholders ("equity investors" part of the risk formulation) go elsewhere. The fact that there is an insurance industry (i.e. people) that is willing to take on workers' compensation liability should be rewarded.

That does not mean that every insurance company should be applauded, or that all insurance companies are good.

But without insurance companies willing to take on the risk of covering the risks generated by our laws, we can't have a competitive workers' compensation system.

I do believe that the vast majority of the workers' compensation insurance industry is motivated to do the right thing within the framework of the laws and regulations that created and manage the system.

Yes, that motivation is propelled by money. Money comes in the door in the way of premiums and allows the risk of work injury and disability to be spread against a large population so everyone bears some part of this social risk.

The social risk is not limited to work injury and disability either. Insurance operations (along with all of the other financial intermediary businesses created by modern economies) create a huge amount of jobs.

Not just insurance jobs, but employment across the economic spectrum. Lawyers get employed (representing both carriers and injured workers), doctors get referrals, brokers, agents, safety and risk people; all are examples of indirect employment through insurance.

Through insurance investments other jobs and contributions to the economy occur. For instance, the Southern California town of Rancho California near Temecula started out as a long term investment of Prudential Insurance (okay, not a work comp carrier, but a life insurance company that probably does buy long tail comp books of business investments too...). That huge long term investment created construction jobs, financial jobs, and the community built provides ongoing economic activity with stores, infrastructure, schools, etc.

Healthy, strong, financially motivated insurance companies serve as a critical intermediary between risk and stability.

It IS a good think when the insurance industry is making money. Granted, there of course needs to be tight regulation because it is too easy for unscrupulous operators to take advantage of the public in an involuntary "free" market such as work comp - that there are people willing to step up, meet the regulatory challenge, fulfill that critical intermediary role and provide that economic lubrication should be rewarded.

That reward is called, "profit."

There's always going to be that faction which is critical of the fat cat insurance carriers taking the public to the cleaners, and leaving the injured worker destitute and ripping off employers.

I can't do anything about those sentiments other than to suggest that those who have those feelings invest in workers' compensation insurance companies.

MY CONCLUSION - unexpected investment returns, low resistance to premium increases and continued decreasing in losses produced better than expected  results for the industry - i.e. carriers are making money! At least on the macro level.

And that's okay.

If I Could Teach The World to Sing

A new comer to the workers' compensation industry remarked to me a very simple truism - an underlying fundamental in workers' compensation is that nobody trusts each other.

Workers, whether before or after injury, don't trust their employer, and particularly so once a claim has disappeared from HR's desk to the insurance company or claims administrator to process the claim, let alone efficiently.

Insurance companies and claims departments don't trust vendors, whether directly contracted or not, to actually provide what they say they would or to charge within fee schedule or contracted terms.

Providers, particularly medical vendors, don't trust carriers and claims administrators to pay them, let alone timely.

Regulators aren't trusted by anyone in the system to get done what needs to get done to process claim disputes efficiently.

The word and advise of defense attorneys isn't trusted by their clients to actually be what is represented (and that includes billing).

Attorneys representing injured workers aren't trusted by the defense community to act fairly or in the actual best interests of their clients.

There are exceptions of course, but this new comer, in his inexperienced, rookie eye, has made a very keen observation.

This universal mistrust is at the heart of reform efforts, stems from layers of either abuse or fraud at some point in time or another, and fosters a constant effort to micro-manage nearly every aspect of the system.

Employers aren't trusted by government to secure and pay for compensation coverage.

Carriers aren't trusted to provide benefits.

Brokers aren't trusted to place coverage where needed.

Judges aren't trusted to come to a reasonable legally justifiable decision.

Everywhere you turn mistrust permeates the system.

I guess it sort of makes sense. Mistrust was at the heart of the "Grand Bargain" from day one. Remember that workers' compensation came about because employers could not trust their injured workers to clean them out of factory and store with a jury verdict.

And workers didn't trust their employers and bosses to take care of them if injured in the course of rendering services so the company could make a profit, even after a jury verdict.

I think that this grand mistrust eviscerates nearly every nook and cranny of workers' compensation, which is why central pods of decision making authority have been compromised over time, and why our work comp laws, particularly in the most untrusting states like California and New York, are hugely complex.

Which is why claims adjusters no longer just settle vendor bills and why litigants can barely agree on a doctor to render an opinion.

Maybe this is just a reflection of modern society.

This mistrust drives a lot of business. Bill review, independent medical review, investigations, payroll reporting and carrier auditing - it doesn't matter where you are in the system. Someone, somewhere along the workers' compensation landscape is looking jaundice-eyed at YOU.

I think much of this is just the kind of information we are exposed to.

Rarely do we hear any stories of deeds done good.

When was the last time you heard of anything in the media about an injured worker having a successful outcome and overcoming adversity to get back on the job?

When was the last time you heard about an employer thankful they had insurance and that the claims administrator did a good job?

More often than not we see press releases of fraudulent acts and the criminals who perpetrate them getting taken to task.

Or stories of cases where the injured worker seemingly got more than they deserved or should have received.

I can't resolve this mistrust. You can't either.

But I do have a suggestion - when something actually goes right in this wacky world of work comp, take just a moment and say, "Thank You."

Maybe I'm being a little polyannish, and maybe my liberal Italian heritage has overtaken rational thinking.

Perhaps I watched too much TV in the 80's when Coca Cola had the whole world singing in perfect harmony.

Perhaps I trust too much.

How To Reduce Claim Costs

If you're a regular reader of modern day "short news," the variety that has been popularized by Harry Blogett and his web site Business Insider, you know that the headline I used for this morning's post was crafted only to get your attention.

Because I really don't know how to reduce claim costs.

But the folks who have been crafting California work comp reform over the past 20 years or so think they do, or so it seems.

The collective reformer's attempted way to reduce claim costs appears to be to make the system so convoluted, so complex, so impossibly irrational, that no regular human being, let alone an injured worker in distress, could possibly get through the system without the aid of an expert.

This WorkCompCentral Forum post (http://forums.workcompcentral.com/viewtopic.php?f=37&t=2158&sid=0283683e18fc94c37b7f0bfa0223450e) reflects just how desperate some injured workers are to understand what is happening with their claim and how to navigate the system to ensure that they are not taken advantage of by the employer/carrier responsible for providing their benefits.

Even if you are an expert, staying on top of all of the changes wrought by legislative fiat then remolded by regulatory implementation, only to be further refined (or deformed as some would insist) by case law requires constant education.

There has been debate recently highlighted in the press about the frustrations attorneys are experiencing trying to manage their client's cases with legal challenges and procedural barriers at nearly every turn, to the point that many are saying there's much less activity actually getting a case to a settlement or trial position and much more haggling and gamesmanship about procedural defects or other issues.

Here's what the sad part of this whole scenario is - workers' compensation was supposed to be generally a self-executing, administratively managed, benefit delivery system.

It is important to restate that it is supposed to be a benefit delivery system.

Not a system of Byzantine complexity or Rube Goldberg insanity.

This insanity gets worse every reform...

Yet, in the quest for cost control the legislature, and consequently the regulators, have seen to it to create incentives for injured workers to get attorneys.

The other day I basically took the California Applicant's Attorneys Association to task for singling out the PD rate in comparison to other states - my point was that the weekly rate is an insufficient basis for comparison because so much more goes into calculating the totality of compensation paid for a permanent disability.

But there is one thing for sure - more applicant attorneys are needed in this system if it is to continue in the unrealistically overburdensome restrictive state of convolution.

More applicant attorney involvement means more defense attorneys.

More attorneys on either side of the fence simply mean more costs ... to everyone, not just employers, carriers or vendors, but to injured workers too, because their claims become unnecessarily extended and with procedural madness.

And I think that the statistics bear this out over the past couple of years where defense attorney spending has risen 22% since 2010 (last numbers from the Workers' Compensation Insurance Rating Bureau reflect $780 million in 2012).

Providers of services and goods to injured workers have also been targeted, with lien filing and (currently suspended) activation fees, procedural hurdles, and just blatant discrimination at the hearing level.

A WorkCompCentral story this morning provides some illumination in just how difficult it is for providers to get paid for their services, even when legitimate and with prior authorization.

I don't know what the numbers are showing yet, but I have seen enough anecdotal evidence to indicate that SB 863 is shaping up to be an abysmal failure in terms of saving costs.

To add to the dour portrait being painted by SB 863, some are saying that the simplified method envisioned by the administration for disbursement of the $120 million slush fund will create even more liability and costs for employers.

Frank Neuhauser, a researcher for the University of California, Berkeley and no stranger to researching the vagaries of California comp, says that while linking eligibility for cash payments to the Supplemental Job Displacement Benefit voucher seems simple, the risk is a big increase in utilization of the benefit.

“I don’t think the Supplemental Job Displacement Benefit has been used that much,” he said. "Now you’re going to basically require that any worker who can use it, use it.”

And employment law attorneys are saying that this scheme opens up employers to increased exposure for Fair Housing and Employment Act liability.

Bill Armstrong, of defense firm Armstrong, Callan & Shiu, told WorkCompCentral that the Physicians Return-to-Work & Voucher Report required to inform the employer of the work capacities and activity restrictions resulting from the injury may be a trigger to the "interactive process." An unaware employer (probably most small and medium sized employers in the state) could get stung.

“Because it’s specifically stated that it’s relevant to the search for regular, modified or alternative work, my view is receipt of that form triggers the obligation to commence the interactive process for accommodating job offers,” Armstrong said. “Since California recognizes a cause of action for failure to engage in the interactive process, there can be FEHA potential if the employer receives the form and doesn’t immediately involve the worker in the process.”

So back to the opening premise of this post - I really don't know how to reduce claim costs.

But if you want to know how to increase claim costs, just go back 20 years and review all of the "reforms" that have been implemented.

Work Comp Fantasy

In the second of articles that review what is driving litigation, this morning's WorkCompCentral news looks at Northern California's ongoing contentions with the Qualified Medical Examiner process.

The QME process was actually created in 2004 by SB 899, but SB 863 amended Labor Code Section 4062.2 to eliminate the need for the attorneys to try and settle on a medical evaluator before requesting a QME panel.

Not that the requirement was much of a procedural impediment. The fact is that the negotiation step was perfunctorily administered by practitioners to get to the ultimate step of requesting a QME panel.

Now, under SB 863, the parties can just ask the Division of Workers' Compensation for a panel and get a list with the names of three doctors. Each of the parties can strike one name from the list, and the last remaining doctor is the one who will see the worker and issue a report.

What seemed like a simplification of the process, though, apparently isn't, according to this morning's story.

Now litigants fight about the QME specialty.

And to make matters a bit worse, the story is that the DWC can't decide whether to be the dispute resolution authority, or delegate that task to Workers' Compensation Judges.

When the DWC decides to resolve disputes a backlog of requests occurs, delaying the litigation process, is part of the complaint of attorneys in the system. 

But when DWC "opens the floodgates" and just starts issuing panels in response to every request a Department of Industrial Relations regulation requiring that the worker obtain an appointment with the QME selected by the parties within 60 to 90 days must be met.

And that can be problematic because of the dearth of QMEs, particularly in more sparsely populated areas.

Ergo, some injured workers are unable to set an appointment within the necessary window, which requires a new panel and thus the cycle of selecting a new QME begins anew. 

In addition, there are over 16 bases upon which the parties can request changes to the composition of the panel. The parties can also fight over whether each exercised its striking power in a timely manner, whether the QME panel was appropriately requested, and whether more than one panel is necessary. 

Examining the plight of the lawyers in the system - i.e., those who make a living navigating the system's complexity - may seem like fodder; after all these folks chose to be in the system as their profession.

But the real issue is accessibility to the system.

How can anyone, whether you're an employer, a carrier, an attorney, a doctor, a broker, or anyone else that serves in this industry, say that it is a viable system if there are accessibility issues?

And there ARE accessibility issues. With each new "reform" we see increased complexity, increased barriers to entry or utilization of the system (and I use that in the broader context rather than the more narrow reference to medical treatment that the alphabet groups use it), and increased costs.

Worse are that the costs can be measured over and above monetary values - the costs in human, and business, lives are the tragic result of failed attempts to make workers' compensation do something it wasn't intended to do: save money.

There is nothing in the mandate of work comp that says it has to cost a certain amount, or that it must comply within certain financial expectations, other than what the market demands.

And what is the market? We try to compare work comp to the general health system but those comparisons are completely irrational. Workers' compensation was designed to be a give-away.

Like it or not, the work comp "bargain" was specifically negotiated at its origin to give employers protection against civil law suits and the unpredictability of huge jury damage awards.

And in conjunction work comp was to give out money to injured workers and those who provide them with services (medical and/or legal) in a reasonably predictable manner to help avoid terrible consequences of a work injury.

The disconnect is when layers are introduced to "manage" this system with expectations that are derived from other systems or assumptions that are erroneous.

In fact most people's idea of "managing" a claim is really "containment," i.e. making buckets, or containers, in which everything under a certain category or designation is placed.

The problem with containment is that it unnecessarily sweeps everything up with it, the good along with the bad.

Medical treatment, for instance, is now generally universally subject to treatment "guidelines." I put guidelines in quotes because though they are called that, in practice they are dictatorial instructions - utilization review, and now independent medical review, follow the "guidelines" in an almost rote fashion with little to no exception.

This removes physician medical discretion, and adjuster discretion. There is no active management because the decision making process has been systematized - no thinking required.

Remove thinking from claims processing removes valor and the motivation to do the right thing at the right time.

In my mind accessibility means the ability to get to the benefits of the system with little resistance after meeting minimal qualification standards.

But we have created a system now where even though minimal qualification cues are met, getting to the end result requires circuitous pilotage of antonymous rules and discretion to provide circumnavigation has been removed.

That's no way to run a business, and certainly no way to run a privatized social benefit system.

Dereliction In Judgment

The Workers' Compensation Research Institute in partnership with the International Association of Industrial Accident Boards and Commissions released a guide last week that should prove imminently helpful to workers' compensation professionals that do work across state lines.

Titled “Workers’ Compensation Laws as of Jan. 1, 2014,” the publication effort was spearheaded by Ramona Tanabe and is a compendium of the various laws in a single documented comparison. It is a beefier version of the report that has been published by the U.S. Department of Labor, Bureau of Labor Statistics (the report can be purchased here).

Many people want to know how their state's laws compare to another. This helps them traverse unique jurisdictional quirks.

Other people like the political implications of the report by using it to say that one thing or another is unfair to a particular segment compared to other states.

Of course, such comparisons are nonsensical. The authors of the report know this and issue such a warning in the first few pages, because they know that the workers' compensation laws are complex, that they become even more so when regulatory and case law interpretations are applied, and that there really isn't any way to do an apples to apples comparison.

Still, the California Applicants Attorneys Association decided to issue a press release that decries the permanent disability rate of the state because it ranks fifth from the bottom of all state PD rates.

“The new study shows the inadequacy of compensation for lost earnings due to work injuries,” CAAA President Jim Butler said in a statement. “It is time to restore the balance to the California workers’ compensation insurance system. Insurance companies are reaping the benefits while working Californians are compensated at the bottom of the nation.”

I like Jim. But he's incorrect in this statement. The study shows nothing of the sort of conclusion he and CAAA are drawing.

We all know that there are many factors in a PD rating - one of them the length of time that the weekly benefit amount is paid out. The study doesn't tackle this complex calculation. And regardless of what the PD rate is insurance companies will always be "reaping the benefits" because they are in the business of insurance, and applicant attorneys likewise would reap any benefit of a PD increase because that's how they get paid.

Sacramento Bee columnist Dan Walters reported on his Capitol Alert blog Wednesday that the comparison shows that “California workers who suffer permanent job-related injuries and illnesses are entitled to workers’ compensation payments that are among the lowest in the nation.”

Again, Walters makes conclusions that are disingenuous - the study does nothing of the sort, particularly when one looks at the temporary total disability indemnity rate, which is among the highest of all jurisdictions (and is pegged to an inflationary standard which will likely keep the relative rate stationary).

So please politically oriented readers of the study - stay away from making statements that mischaracterize the material.

Jesse Ceniceros, president of Voters Injured at Work, said injured workers in California seem to be receiving less and less of the fair and adequate compensation promised by the state constitution each year as medical costs and operational expenses account for a growing percentage of comp payouts.

Maybe that's true - about 60% of each claim dollar goes to the medical side of the equation.

Still, the average cost of a litigated, attorney represented, claim in California is now about $80,000.

That's about twice what it was 10 years ago - a rate of inflation that most investors would envy, but which is unrealistically sustainable if the system is to remain somewhat viable since, based on reports from the Workers' Compensation Insurance Rating Bureau earlier this year about 78% of all claim costs come from the 11% of claims that go litigated with attorney representation.

However, while the applicant attorneys decry the benefit rate of PD, there simultaneously is increased pressure on the dispute resolution system as payers hold back benefits because of some perceptions in the way SB 863 is to be interpreted and/or administered, and the applicant attorneys push back with their own interpretations.

A WorkCompCentral report this morning details how disputes about how to carry out SB 863 changes are bogging down the workers' compensation system and making day-to-day life miserable for both attorneys and their clients.

Much of this consternation centers around the anonymous IMR process.

The Administration relied, in my opinion, on erroneous assumptions concerning the volume of medical treatment disputes, and consequently the IMR sub-system quickly became overburdened with requests for review.

In addition, the law for IMR is circular - once in the IMR system you go round and round and round - the system is so technical, so procedure oriented, that the practice of workers' compensation law is no longer about resolving a case, but is about trying to get to some point where a conversation can be held just to move a case forward towards some resolution.

San Diego attorney John Don said, "I have never filed for so many expedited hearings in my 20 years of doing workers' comp."

And defense attorney Scott Star reiterated that "more time has been spent on these issues then focusing on the big picture in the case," so cases are not moving along towards resolution.

Medical provider networks also seem to be a cause of litigation because many MPNs lack sufficient coverage.

"Many of the MPNs have been unable to find enough doctors in some of the sub-specialties, resulting in a fairly big push to move injured workers out of the MPN," Star told WorkCompCentral.  

The last statistics from the WCIRB show a continuing increase in the amount of claims dollars going towards attorney fees - particularly defense fees. Defense lawyers, according to the WCIRB, got $773 million in 2012 - a 22% increase over the $608 million paid to defense lawyers in 2010. Likely that figure will exceed $800 million in 2013.

While the applicant attorneys have also seen some increase, the rate is much more muted - the WCIRB says applicant lawyers took in about $450 million in 2012, up from $386 million the year before.

Which brings me back to the WCRI study.

Any time there is a state by state study in anything workers' compensation there are going to be people who either criticize or celebrate the statistics.

But the statistics lie. There is no way to adequately compare one state to another.

This applies to whether one is comparing state laws, costs, rankings or otherwise and whether the study is reported by WCRI, WCRIB, the State of Oregon or any other reporting entity.

The sad part of all of this is that the debate sparked by the WCRI report is exactly why workers' compensation fails to deliver on political promises: because the conversation gets fragmented.

We don't talk about workers' compensation in a holistic sense. We take and use the various parts to prove certain points, to support disassociated arguments, to dig for what makes it better for whatever special interest is trying to prove a point.

There are many different ways to compare one state to another - but that shouldn't matter. Why should Californians care what their compensation is compared to New York, or Illinois, or Alaska for that matter?

The debate about whether one state's system is competitive versus another state is misguided. There is no state-by-state competition going on here. The issue is not whether one state is better than another in any particular respect. The issue IS whether a state's workers' compensation system performs its constitutional mandate.

In California that mandate is to provide medical treatment that "cures or relieves" and compensates victims and their families  with "support to the extent of relieving from the consequences of any injury or death...".

These are vague and amorphous standards and require looking at the total picture a whole, without segmenting categorized benefits.

Listen - no one will ever be happy all of the time with everything that occurs in workers' compensation. It is a system that tries to do too much of everything for everybody so no one is ever happy all of the time.

That's how it is.

And we can all pick out specific cases and instances where the system fails.

We can also all pick out specific situations where the system works.

Attention on the PD rate takes the attention away from where it should be right now: making the system accessible. If the anecdotes are correct - that the litigation delays are even greater after SB 863 - then there has been a terrible dereliction in judgment.

Long Tail Whips IL Pool

Workers' compensation claims are often described as having a "long tail," meaning that they take some time to close out in general.

About 200 Illinois school districts that are part of a self-insurance trust are finding that out.

Because of claims from 2008 and 2009, the Illinois Workers’ Compensation Self-Insurance Trust has a negative fund balance.

So on April 1 it sent member school districts a letter stating that it would soon be assessing them to cover the negative fund balance.

According to a June 30, 2012, financial statement, WCSIT’s net assets fell from $473,235 on June 30, 2010, to negative $1.27 million a year later, and to negative $4.27 million on June 30, 2012. 

The Chicago Tribune reported that the deficit ballooned to $7.24 million in 2013. 

The decrease in net assets was $1.10 million in 2010, $1.75 million in 2011 and $3.00 million in 2012, and just under $3 million in 2013. 

Part of the negative financial picture is likely due to decreasing membership.

According to the Tribune, WCSIT’s membership had dropped from 365 districts in 2003 to 193 districts in 2013.

We know that workers' compensation is a cash flow system. Despite reserves, any workers' compensation mechanism must have fresh cash coming in to make investments for the future because reserves tie up capital.

Less members means less money.

WCSIT is administered by the Sandner Group, a for-profit claims manager in Chicago. The Tribune reported that James Woodard, who manages the pool, said the pending assessment would amount to about $9 million. 

Districts will pay an average of about $36,000, depending on their size. Districts that were members during 2008 and 2009 may be required to contribute even if they have since left the pool.

On the flip side, according to the story, WCSIT has paid out about over $29 million in surplus distributions and royalties, in addition to distributing about $175 million in claims, in the past.

Meanwhile, regulators at the Illinois Department of Insurance have sought to investigate the finances of the pool and its administrator, the Sandner Group, the newspaper reported.

Pool officials have refused to turn over requested documents because they don't feel the state has a right to examine the books, prompting an Insurance Department lawyer to write a letter that said the refusal “has created a high level of concern” about the business conduct of the pool’s managing company, according to The Tribune.

An attorney for the pool says it has done nothing wrong and that they are taking a stand against what they feel is an overreach by regulators, and notes that the pool has to pay for the financial examination - costing the trust even more money it doesn't have.

Many of the pool's participants are small school districts. One district cited in the story has only one building. So the assessment hits these participants particularly hard.

In the meantime, Sen. John Mulroe, D-Chicago, sponsored to passage of SB2339, which went into effect Jan. 1, 2014. That new law clarifies the Insurance Department's authority to monitor self-insurance pools. 

The law mandates annual auditing and permits examination of financial documents, and imposes penalties against governmental entity self-insurance pools for failure to comply. It is not limited to workers' compensation.

Self insurance pools, trusts and other attempts to lower the cost of coverage have their own internal risks. Initially, as membership grows the financial pictures are rosy because the infusion of cash masks the lurking expense of claims.

But those tails are long, and we all know that "adverse developments" get radically more adverse, nearly exponentially, the longer claims remain open. And because the market for such pools is relatively small, they are less able to spread the risk, and thus absorb adverse situations so pool members can end up, as in this case, with retroactive liability.

There's never something for nothing. Risk pools are a neat idea when they work. And they can throw monkey wrenches into budgets when they don't.

Communication: First Step in Trust

The New York Workers’ Compensation Board forwarded to Gov. Andrew Cuomo recommendations from Deloitte Consulting which was contracted to identify ways to make the state's workers' compensation system more efficient to get speedier, fairer results for injured workers.

The actual Deloitte report isn't yet available for public consumption, but the WCB does have on line the firm's presentation for download and viewing.

Though Deloitte identified technological issues that need updating (of course the much criticized document scanning contract was cited), the most profound finding of the consultant's $2.8 million report was that trust in the system had deteriorated.

Deloitte cataloged the following “common themes”:

• “The system is rife with delays for treatment, initial payments, reporting, decisions, appeals."
• “Lack of trust throughout the system; participants can no longer rely on good faith."
• “Lack of respect and dignity for the injured worker.”

Breakdowns in the independent medical examiner process and “excessive” scheduled loss-of-use award payments have fostered this mistrust along with other action (or lack of) in the state's system.

And the WCB seems to recognize these criticisms as real.

On its Business Process Re-engineering web page the board says that New York “is historically slow to pay injured workers and produces poor medical outcomes in comparison to other states.”

The board boldly states what might seem obvious, but for a governmental entity to admit publicly is rare: “Improving a system that has decayed for decades is not easy. Not every vested interest will agree on every recommendation. Interest groups that profit from dysfunction will defend the status quo.”

And even though the ink hasn't dried yet, WorkCompCentral interviews with various interest groups confirm the board's conclusions.

For instance, an employer group representative says that the board's conclusion that New York needs to speed up payments to injured workers is based on anecdotes and that there is no "hard data" to support the board's statements.

But this ignores the many studies from disinterested research groups who have studied and ranked state's costs associated with timely payments and other benefit delivery measures.

I'm sure there are other objections to observations being delivered by Deloitte and the board.

All of these go back to the common theme identified in these early disclosures - mistrust in the system.

This mistrust starts from the top - as many institutional trust issues do.

Internal denial is a strong indicator of overall trust, because if the institution can not be honest with itself, how can the public trust it.

For example, the board has lagged on posting to its extensive website any pages on the BPR. K. Brian Collins, the board’s BPR project head, posted monthly updates for October, November, January and February, but not for March or April.

His February update included a graphic that indicated BPR implementation would begin in late March.

Yet Rachel McEneny, a spokeswoman for the board, said “We are on schedule. There is no delay due to the transition of the executive director,” referring to the rather abrupt and inopportune departure of Jeffrey Fenster as the board’s executive director. Giving only two weeks' notice, Fenster left in early April for a job in the insurance industry.

It's a good start that McEneny speaks to the press. But let's not brush over that the BPR initiative is behind the published schedule.

If New York is going to "fix" its system it first has to be honest with itself and admit to the problems and issues it faces, including a derailed document scanning program, closed hearing sites, and the missed self-imposed deadlines.

And if the board IS honest with itself, then it must communicate with the public, whether triumphant successes or embarrassing failure. Lack of honest communication, or artificially controlled communications, spreads rumors and instigates suspicion.

For instance, one person interviewed in the WorkCompCentral story this morning said he had heard the board may attempt to make it more difficult to obtain a hearing in order to reduce system costs.

Maybe that's true, or maybe that's just a bad rumor. The point is that what the board may do and why was "heard" - though frankly to me the rumored action doesn't make sense.

The easiest way to diffuse criticism and instill trust is to admit to short comings and communicate when error occurs.

In the past the board would not communicate with the press (or at least not WorkCompCentral), which stems from some critical reporting a couple of years ago.

I sense that perhaps this reticence is slowly lifting. Obviously the board's admissions on its BPR FAQ page is indicative of new found honesty.

If that's true, then trust in the system can be recovered.

If not, then no matter what recommendations Deloitte makes, no matter how much money the state spends on document scanning, no matter how many district offices are opened or closed, won't make a difference.

The recent change in heart by the board's communications department is a good step in the right direction. It's a difficult first step, but it makes it easier to take the next step and perhaps the people will start trusting the system again.