Workers Compensation


I.I.I. chief actuary Jim Lynch reports from the Workers Compensation Research Institute (WCRI) annual conference:

An important cost-control mechanism of the Affordable Care Act could end up annually shifting hundreds of millions of claim dollars into the workers compensation system, preliminary research by the Workers Compensation Research Institute (WCRI) indicates.

The mechanism is the Accountable Care Organization (ACO), and WCRI researchers used the ACO’s similarity to Health Maintenance Organizations (HMOs) to estimate the nature of the cost shift as well as give a general idea of its magnitude.

An ACO is a network of doctors and hospitals that share the financial and medical responsibility for a group of patients. The ACO receives a set amount per patient for a year, regardless of the services each patient receives, a structure known as a capitated plan. HMOs are another type of capitated plan. The difference: an ACO can be paid more if it saves money while providing high quality care.

This difference gives some health experts hope that ACOs can rein in healthcare costs better than HMOs do. They believe healthcare will respond to the profit incentive ACOs offer.

The Affordable Care Act encourages ACOs and other capitated plans.

WCRI’s research indicates that capitated plans tend to push sprains, strains and other soft tissue injuries into the workers compensation system, WCRI Executive Director Richard Victor told about 300 attendees at the organization’s annual conference in Boston on March 5.

Often it is hard to tell exactly what caused a strain like a sore back, Victor said. It may have come while at work or at home. Usually the classification is the doctor’s decision.

In an ACO or any other sort of capitated plan, the doctor has a choice: call the injury work-related and bill the workers compensation insurer or decline to do so and collect no additional fee. The financial incentive is obvious.

The WCRI study looked at a nationwide sample of more than 700,000 claims from 2008 to 2010, about 17 percent of which came from HMOs. It classified states into two buckets, depending on how prevalent HMOs were.

In states with a relatively large HMO presence, HMO doctors put 26 percent of soft tissue injuries into workers comp. That was 30 percent more often than doctors in traditional fee for service arrangements.

For injuries like a broken arm, where it was easy to know what caused the injury, HMO and fee-for-service doctors put about the same percentage of claims into workers comp.

States with fewer HMOs didn’t exhibit the same shifting, the study indicated.

It is harder to estimate the financial impact, because it’s hard to say how popular ACOs will become. To develop an estimate, Victor hypothesized that ACOs could increase the percentage of workers in capitated plans by 25 percentage points. Such an increase would allow capitation plans to regain the 15 percentage points of market share they have lost since 2000 and then some.

Under that scenario, cost shifting in Illinois would push $90 million of claims into workers comp. In Pennsylvania, the shift would cost workers comp insurers $55 million.

Next week Jim Lynch will be in Boston for the annual conference of an I.I.I. subscriber, the Workers Compensation Research Institute (WCRI). Here’s his preview:

WCRI is known for its painstakingly objective analyses of workers comp trends in more than a dozen large states. Lately mainstream media have noticed WCRI, particularly this New York Times article, in which researchers found that when the prices of common dosages for back pain were capped, California doctors switched to dosages whose prices were not capped. This allowed them to charge about five times more per pill.

Physicians tend to charge considerably more than pharmacies when they dispense drugs, a phenomenon WCRI studies regularly. The costs and consequences of physician prescriptions is one of the main topics of the first morning of next week’s conference. (Registration and other details here.)

Day Two will feature a topic in which I’ve become more interested in recent weeks – the ability to opt out of the workers comp environment entirely.

For about a century workers comp has been a pact that has bound employers to employees in liability law. Workers give up their right to sue if they are injured on the job. Employers agree to pay for all injuries at work, regardless of how they occurred.

For decades Texas was the only state that didn’t follow these rules. Employers could opt out of the system, but they lost the considerable common law defenses employers usually enjoy. Workers’ Comp Insider has a nice overview of the Texas system.

In 2014 Oklahoma became the second opt-out state. Tennessee lawmakers have proposed their state become the third, even as Oklahoma’s law faces a constitutional challenge, as Business Insurance reports.

At the WCRI conference opt-out will get a hearing. A representative from retailer Nordstrom, which supports opt-out measures, will discuss the matter with an AFL-CIO representative and one from PartnerSource, a company that helps successfully opt-out.

Follow my live-tweeting of the conference @III_Research and check back for another blog post.

Update: Aw, shucks. I learned early Thursday that the opt-out session at the WCRI conference has been canceled. I’ll still be going to the conference.

I.I.I. offers facts and statistics on workers compensation.

I.I.I. chief actuary Jim Lynch previews the Workers Compensation Research Institute’s (WCRI) Annual Issues & Research conference:

This time last year, property/casualty insurers worried how the Affordable Care Act’s rollout would affect workers compensation insurance. The debate seemed to disappear as the law took hold, but research to be unveiled at a March workers compensation conference in Boston might return the issue to the limelight.

The big fear a year ago was cost-shifting, and both health insurers and comp insurers felt costs would be shifted onto them. The issue was the borderline claim, one that could arguably be a health claim or a comp claim.

Consider a person with a lingering back injury. The injury could have been caused by heavy lifting at work or at home, and the injured person might be able to make a claim on either health insurance or workers comp.

Comp insurers worried that the ACA was tightening health insurance cost controls better than comp insurers were allowed to. As the cost containment took hold, cases that straddled the border might drift into the workers comp world.

Health insurers, meanwhile, worried that they would take on claims of the previously uninsured, some of whom used to find a way to make that borderline case into a workers comp claim.

Research swung both ways. As the law has rolled out, the issue dissipated, at least among the mainstream media. If there was an impact, it appeared to be too small to measure.

Now the Workers Compensation Research Institute (WCRI), a Cambridge, MA, not-for-profit organization has looked at the ACA/comp issue again, specifically the potential effect of accountable care organizations on the workers comp system.

Accountable care organizations add to health care’s alphabet soup by being known as ACOs. They are groups of doctors, hospitals and other health care providers that combine to form networks that coordinate patient care. If they can save money while keeping quality high, they share in the savings. Kaiser Health News has a Q&A with details on how ACOs work.

The health care law offers incentives to create ACOs, but WCRI’s research indicates that “as ACOs become the norm, the number of workers compensation claims is very likely to increase,” said Richard A. Victor, WCRI executive director. The dreaded cost-shifting may be on its way.

Details of WCRI’s analysis will be released at the organization’s annual Issues and Research Conference March 5 and 6 in Boston. Other sessions at the conference will cover physician-dispensing of drugs, low fee schedules, a look at workers comp reform over the past two decades and look at challenges the line of business faces in the years ahead.

The I.I.I. has an Issues Update on workers compensation, one of the oldest casualty lines of business and one of the most complex.

I.I.I. chief actuary James Lynch digs into the data in an informative piece on loss trend factors:

Actuaries can be buggy about numbers, to say the least, and my article in this month’s Actuarial Review – a publication of the Casualty Actuarial Society (CAS) - looks at a couple of sources of loss trends that can act as useful benchmarks.

One looks at workers compensation medical costs in 25 states. It is produced by the Workers Compensation Research Institute (WCRI), an organization I work closely with in my role as I.I.I. chief actuary.

The other looks at comp loss trends plus those of about a dozen other lines of business and has information going back to the 1930s, if you do a little digging. Older actuaries remember it as the Masterson Index, named after a Stevens Point, Wisconsin, actuary who created it and maintained it until relatively recently. Now Towers Watson actuaries have taken over the calculation.

As a sidebar, I also looked at the way the federal government measures auto inflation, including how it handles the introduction of predictive models and other overhauls to rating plans.

I.I.I. chief actuary James Lynch brings us a grim story on drug abuse and how it affects insurers:

This week Contingencies magazine published my article tracing how America’s latest drug epidemic has affected workers compensation insurance.

The epidemic comes from 20 years of gradually increasing use (and abuse) of opioids, a special class of prescription drugs that mimic many of the effects of heroin. Some you may have heard of, like Vicodin or OxyContin. Prescribed legally but highly addictive, they have become the most commonly abused class of drugs in America.

More people die from drug overdoses in America than from car accidents, and opioids lead the tragic parade. In 2010, for example, 16,652 people died from opioid overdoses, more than from heroin and cocaine combined. Opioids toll has tripled since the late 1990s.

My article shows how the growing epidemic played out in workers comp. Narcotics make up 25 percent of workers comp drug costs, and more than 45 percent of narcotics dollars pay for drugs containing oxycodone, according to the National Council on Compensation Insurance.

Insurers have acted as the crisis emerged, and now they as well as federal, state and local officials may be making headway against the problem.

Last week, after my article went to press, AIG’s new chief executive, Peter Hancock, noted his company had teamed with Johns Hopkins University to study opioid abuse among the company’s 23 million workers compensation claims.

“It is a terrible cost to the industry, a terrible cost to employers, and it’s a terrible cost to society,” Hancock told The Wall Street Journal. AIG has medical professionals working with doctors to find ways to alleviate pain without turning to opioids.

The most recent federal action reclassifies any drug containing the opioid hydrocodone as a Schedule II drug, meaning its prescriptions are more tightly controlled than before.

Unfortunately, these actions may be too late to prevent many opioid addicts from switching to heroin. Opioids tantalize the same brain receptors as heroin, and there are signs that addicts deprived of their Oxys switch.

Earthquake exposure is one of the biggest risks to workers compensation insurers, so it’s interesting to read that the California State Compensation Insurance Fund (SCIF) is once again looking to the capital markets to provide reinsurance protection for workers comp losses resulting from earthquakes.

This is a repeat of the first catastrophe bond sponsored by the SCIF in 2011 – Golden State Re Ltd sized at $200 million — which is due to expire in January 2015.

Artemis blog says:

The unique transaction, which has not been repeated by anyone else until now, links earthquake severity to workers compensation loss amounts demonstrating a new use of the catastrophe bond structure.”

The Golden State Re II catastrophe bond issuance is expected to be sized at $150 million or more, and will cover the SCIF until January 2019.

While the covered area is for earthquakes events across the United States, Artemis notes that as with the 2011 deal as much as 99.99 percent of the SCIF’s insurance portfolio is focused on California, so the risk is primarily focused on California-area earthquakes.

The new deal apparently carries a similar modeled loss trigger to the 2001 transaction, using the exposures of a notional portfolio of workers compensation risks in the SCIF portfolio, earthquake severity factors (ground motion), geographic distribution of the covered portfolio, types of buildings covered, time of day and the day of week an event occurs as some of the weighting factors.

An earthquake has to be magnitude 5.5 or greater to trigger the catastrophe bond, according to Artemis, and losses after an event will be modeled deterministically, so not related to actual injuries and fatalities, using the earthquake event parameters. This will be modeled against the notional portfolio using day/time weighting to determine an index value and notional modeled loss amount.

A 2007 report by EQECAT for the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) estimated California workers compensation insurers would pay annual losses of $180 million caused by earthquakes.

The report suggested that the losses would affect 15.6 million employees working during a major earthquake.

Check out I.I.I. facts and stats on workers compensation insurance.

Construction workers, farmers and landscape workers take note: insect-related deaths are most likely in your line of work.

As reported by The Wall Street Journal’s The Numbers blog, a new report from the Bureau of Labor Statistics (BLS) finds that insects, arachnids, and mites were involved in 83 fatal occupational injuries from 2003 to 2010.

During the course of the eight-year period, farmers and farm workers (20 fatalities), construction occupations (19 fatalities) and landscaping workers (17 fatalities) accounted for two-thirds of the deaths.

Bees were responsible for 52 workplace deaths – more than spiders, wasps and ants combined (25), The Numbers blog reports.

Most of the deaths (72 of the 83 total) were directly caused by an insect, including cases in which the worker was bitten or stung.

Another 11 deaths were indirectly caused by insects. These include cases where an insect distracted the worker while driving or caused the worker to fall from a height.

Anaphylactic shock, often associated with insect-related injuries, occurred in close to half the deaths, the BLS said.

By state, Texas saw the greatest number (21) of insect-related workplace deaths during the 8-year period, followed by Florida (8).

However, when it comes to non-fatal insect-related workplace injuries and illnesses with days away from work, four states: California, Florida, New York and Texas had more than 250 cases reported in all three years between 2008 and 2010.

As a percentage of all days-away-from-work cases in those large population states, though, insect-related cases were less than 1 percent of the total cases in any year.

Not surprisingly, these incidents tended to occur in the warmer months. Almost 94 percent of the cases occurred between April 1 and October 31. The largest number of deaths (17) occurred in September.

Check out National Institute for Occupational Safety and Health (NIOSH) information on workplace safety and insects here.

I.I.I. chief actuary James Lynch brings us an intriguing tale of workers comp and college football:

The most interesting story in workers compensation these days is playing out, quietly, on the sports page. At least the insurance part is quiet.

You’ve doubtless heard that Northwestern University football players were recognized as employees by an arm of the National Labor Relations Board and earned, tentatively, the right to form a union. The news made The New York Times front page, among others, and merited editorials in The Times and The Wall Street Journal.

Less prominent in the stories is what the players want: workers compensation – or at least some system to pay for the injuries they suffer on the field.

The players, petitioning as the College Athletes Players Association (CAPA), aren’t shy about wanting comp-like coverage. Here’s the second paragraph of their petition to the NLRB (pdf):

Faced with the serious risk of concussions and long-term injuries, the Players seek to bargain over health and safety issues like other employees protected by the [National Labor Relations] Act.”

And they make it clear, in the next sentence, that they aren’t out for money, at least not primarily:

CAPA will not jeopardize the Players’ eligibility by bargaining compensation not permitted by National Collegiate Athletic Association rules, but can bargain additional financial support and protections within the existing NCAA rules, and will speak for the Players as the NCAA landscape continues to evolve.”

The seminal takedown of the NCAA is Taylor Branch’s long, long, click-only-if-you’re-stranded-at-O’Hare opus in The Atlantic magazine’s September 2011 issue. In Branch’s telling (scroll down – wayyyy down – to ‘The Myth of the Student-Athlete’) it was precisely because the NCAA feared workers comp that it fought against classifying athletes as employees. The term student-athlete, he writes, was invented in the 1950s after a widow filed for a workers comp death benefit after her husband died from a head injury he got playing football.

Northwestern is appealing last week’s ruling. If the union gets what it wants, it will likely mean the players could be covered under Illinois’ Workers Compensation Act, like other Northwestern employees.

Northwestern is a private university. Public universities – being state entities – don’t always fall under a state’s workers comp laws. Take, for example, the University of Alabama, a powerhouse program I happened to Google. Its employees are covered by The University of Alabama On-the-Job Injury/Illness program – not part of the workers comp system, but governed by similar principles.

The most interesting what-if discussion I’ve seen on the topic comes from – where else? – Bleacher Report.

(Full disclosure: I used to live about 50 yards from Ryan Field, where Northwestern plays. Talk about noisy neighbors.)

I.I.I. chief actuary James Lynch brings us a timely post on one of the most important female contributors to the history of property/casualty insurance:

Constituting nearly 60 percent of the insurance work force in the United States, women are clearly important to the insurance industry.

March is Women’s History Month and this is the perfect time to honor the importance of women in the industry. Our earlier post on this topic can be read here.

The Casualty Actuarial Society (CAS) plays its part, in an indirect way. This month’s Actuarial Review, as part of the organization’s centennial, touches on one of the most important female contributors to the history of property/casualty insurance.

The woman is Crystal Eastman (pictured).

Eastman wasn’t an actuary, and to my knowledge she never worked in insurance. She was a lawyer, a radical in her day, and one of her causes was workers’ rights. Her 1910 publication, Work-accidents and the law, detailed worker injuries in 1907 and 1908 in Allegheny County, Pennsylvania, and the economic toll those injuries took.

In those 12 months, 529 workers died from job-related maladies (see table). Eastman led a team that investigated every death, plus another 509 workers hospitalized between April and June 1908.

About one third of the accidents were unavoidable, the study found, while one third were the fault of the workers themselves and another third resulted from employers failing to provide a safe workplace. The financial burden of the accidents, though, fell overwhelmingly on the victims and their families. They lacked the resources to sue, and common law at the time was stacked against them anyhow.

The solution: workers compensation – insurance covering worker injuries without regard to fault. But early workers comp laws were ruled unconstitutional, typically because they took from employers their right to due process – their day in court. New York’s law, for example, was found unconstitutional on March 24, 1911.

The next day, 146 workers – 123 of them women – died in the Triangle Shirtwaist factory fire. The tragedy led to a state commission, headed by Frances Perkins – later the first female Cabinet member – that documented dismal and dangerous working conditions across the state. The result: a workers comp law that passed constitutional muster.

The law addressed the workers problems – now they could be compensated for their injuries. It created an insurance problem: without a court to adjudicate, how does one set a fair compensation for an injury?

It was for this task that, in 1914, the Casualty Actuarial Society (CAS) was created. So it is not much of a stretch to say that women, both famous and not so famous, are at the fountainhead of the organization.

Check out I.I.I. facts and statistics on workers compensation here and on careers and employment here.

I.I.I. chief actuary James Lynch reports from Day 2 of the WCRI annual conference in Boston:

Health insurance and workers compensation are sort of kissin’ cousins, in that changes that affect one inevitably affect the other.

But that’s my metaphor. Dr. Richard Victor, executive director of the Workers Compensation Research Institute (WCRI), likens the impact of health care reform to a hurricane.

Like a storm whose path is not quite defined, health care reform could take a significant toll – but we don’t know precisely where. Since workers comp differs from state to state, the impact of the Affordable Care Act (ACA) will differ from state to state. Like a good weatherman, Dr. Victor told an audience of about 400 at WCRI’s annual conference in Boston on Thursday he could make some educated guesses what might happen.

He is assuming the ACA is enacted exactly as written – a tough assumption but as good a starting point as any. In that case, the increase in insured Americans will increase demand.

The marketplace might decrease the use of doctors, relying instead on well-trained nurses or even sophisticated computers to help provide care.

Or doctors might raise prices in the face of rising demand.

What actually happens will differ by state. Some states make it difficult to take diagnosis and treatment out of the doctors’ hands. In those states, medical costs – and their kissin’ cousin, comp costs — are likely to rise. Elsewhere, the effect will be muted.

Other insights:

● Health care reform will result in a healthier work population. This will tend to help the comp system, because healthy workers are less likely to get hurt on the job, and if they do get hurt, they get well faster.

● Changes in billing, Dr. Victor said, will “absolutely” lead to upcoding – in which a doctor exaggerates the severity of a treatment to receive a bigger reimbursement. The practice is well-documented in workers comp, he said, citing examples from Florida and California.

● Changes are likely to shift into workers compensation. That’s because many employers are increasing deductibles that employees pay for treatment. Workers comp, meanwhile, has no deductibles and no co-pays – giving an employee the incentive to label an injury as work-related.

I blogged about Day 1 of the conference here. Other highlights from Day 2:

● Alex Swedlow, president of the California Workers Compensation Institute (CWCI) noted that even after all appeals are exhausted only about five percent of denials of comp claims are overturned. Swedlow also said evidence-based pain management guidelines effectively control costs; and a comparison of California and Washington pharmaceutical costs show that more cost savings are possible.

● Harry Shuford, chief economist of the National Council on Compensation Insurance (NCCI), argued that underwriting cycles are closely linked to bond yields and that when it comes to managing their business, insurers in the long run “do a much better job than other financial intermediaries” like banks.

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