Thursday, July 23, 2015

The Future or Workers' Compensation - Revolutionary Ideas

The 67th Annul Convention of the Southern Association of Workers' Compensation Administrators (SAWCA) continued on Wednesday. The Regulator's Roundtable of Tuesday was a tough program to follow, but Wednesday's speakers were up to the task. We heard predictions about the future, discussions of alternatives, and threats to our daily operations. 

Frank Neuhauser led the program Wednesday with his vision of what the future of workers' compensation holds over the next twenty years. Mr. Neuhauser is the Executive Director of the Center for the Study of Social Insurance at Berkley. He brought a perspective that some might see as revolutionary. Ironically this year's SAWCA program is titled "Revolutionary Ideas." right here in the birthplace of American democracy and revolution.

Mr. Neuhauser contends that workers' compensation is a creature of the industrial age, and that our adoption of the concept is rooted in the dangers inherent to manufacturing and transportation in the 19th and early 20th centuries. He says that this was for the traumatic injuries like fractures, burns, amputations, and contusions. Conversely, he argues that this program was not designed for the injuries that might occur in what he terms "safer occupations." For context, it is fair to consider a judge as being in a "safer occupation" in his paradigm. 

He notes that injuries for which workers' compensation was intended were apparent injuries, and the system did not initially involve litigation over causation issues because the occurrence of accidents and the resulting injuries were easily observed. He says that the data supports that more of these traumatic injuries can be shown to occur at work than in our non-work life. To the contrary, he says the data also supports that the volume of non-traumatic events, like back injuries, at work is generally consistent with the volume of non-work back injuries. In other words, he says the volume of back injuries is statistically the same in work and non-work life. 

He concludes that workers' compensation programs should be amended to focus on these more obvious traumatic conditions for which he contends it was originally intended. The non-traumatic events should be removed from the systems, and dealt with through a group health/disability paradigm. In other words, remove the non-trauma conditions from compensability under workers' compensation. He also has proposed a solution for the interaction of workers' compensation and other programs like Medicare. 

Mr. Neuhauser contends that actuaries can very accurately predict medical expenditures for Medicare beneficiaries after age 55. He says that Medicare is a highly efficient system for delivery of medical care, spending $.04 in administration for every $1.00 of care delivered (there was some skepticism in the crowd on Medicare being efficient). Mr. Neuhauser says that by comparison group health plans spend about $.14 per dollar delivered and workers' compensation spends over $1.00 per dollar delivered. He says that we should therefore allow Medicare to become the delivery platform for medical care in all workers' compensation cases. 

He sees this as a process in which insurance carriers or employers would manage medical care delivery immediately after a work place injury; for perhaps two or three years, or until the injured worker is 55, whichever comes first. He is not advocating that the taxpayer take over financial responsibility. No, he proposes that at the time of the transition of a particular case to Medicare, the probable future costs could be predicted by actuaries and the employer or carrier would pay this value to the government as a "premium tax."

This would allow the employer/carrier certainty and finality. This would also allow what he sees as a more efficient delivery platform, Medicare, to deliver the benefits. As importantly, he says that the current paradigm of MSA and recovery would be alleviated. Because of the elimination of ancillary concerns, he contends that this proposal would result in lower medical costs in workers' compensation and thus lower premiums for employers. 

Bary Dalton from the Federal Reserve and Susan Gordon from Zurich took the stage next and discussed cyber-security. They outlined an amazing array of cyber-threats. They explained that our mission to possess and use electronic documents has allowed us the possession of massive volumes of easily accessed and used data. While that provides convenience to workers' compensation agencies and businesses, that also facilitates access for outsiders who have their own designs on that data. 

They shared a quote that is telling: "there's two kinds of CIOs (Chief Information Officers): ones who have been hacked and know it, and those who have been hacked and don't yet realize it. But the reality is, you've been hacked." Essentially, we are all in this threat pool together, whether we know it, admit it, or not. They explained that there are a broad spectrum of people seeking to hack data.

Some are merely adventurers who want to see what they can hack. Some are organized crime, hacking for money, such as the recent breach at Target. Others are called "hactivists" and are perhaps hacking to make a point, such as the recent breach at Sony. Still others are persistent threats, which are perhaps state-sponsored efforts at disruption to a countries financial and information processes. 

They suggested that the threat to data is a direct result of our drive to provide ourselves ease in access. As we have moved from storing data in a file cabinet, to a machine, to a networked and then Internet accessible paradigm, we have facilitated our access to data. In that transition, and furthermore in moving to the "clouds" we have facilitated our progress, but enabled the "bad actor" access as well. 

The take-away from this presentation is that we can defend against their inappropriate access. The best plan is a series of "layered" defenses. Some will actually prevent disclosures of data and others will merely alert us to the presence of trespassers in the data. There are protocols which can be followed, and a growing tendency towards sharing information on security breach for the benefit of other potential targets. It seems clear that we are becoming more self-aware and we are making progress understanding this threat.

In the end, we learned that companies like Sony, Target, and others may have spent hundreds of millions of dollars in reacting to cyber-threats. There are hardware, software and public relation costs. Then there are accommodations for those whose data is stolen, such as credit monitoring services and more. An interesting note, Ms. Gordon says that insurance coverage for these threats is a rapidly growing segment of the casualty insurance market.

The morning concluded with a panel discussion led by our own Abbie Hudgens of Tennessee. She is the Administrator of that state's system and our SAWCA Vice President. Too often, we attend panel discussions in which the phrase "I agree with . . . ." is the norm. This panel on alternatives to workers' compensation could not be criticized in that context. The perspectives on opt-out and our future were diverse and did not hesitate to disagree with one another. 

The panel included Mr. Neuhauser, Trey Gillespie from the Property Casualty Insurer's Association, Jerry Murphy from AmWINS Brokerage of Texas, and John Fervier of the Georgia Second Injury Trust Fund and Waffle House. The conversation was animated and engaging. There are those who see opt-outs as the solution to all that ails us, and those who see opt-outs as a threat to our way of life. Even among those who favor them, there is disagreement as to whether the Texas model (comp is optional, and if you do not have it you are "bare") or  the Oklahoma model (you either participate in the comp market or you provide the financial equivalent of that protection through some approved alternative plan) is the best alternative.

One of the contention points regards the portability of care. It was pointed out that an injured worker in a workers' compensation system can leave the employer with no effect whatever on continuing benefit entitlement for a work injury. The entitlement to workers' compensation is not dependent on an ongoing employment relationship post-injury. The contention is that in an Oklahoma style opt-out that may not be the case. 

The due process arguments against opt-out that are heard in other contexts (legal challenges currently in Oklahoma) played a less-central role in this discussion. The focus here was on whether the opt-out alternative makes sense in the business of employing people. Tennessee faces the prospect of an opt-out. Having gone through a marked statutory revision just two years ago, many wonder if that state will adopt the opt-out alternative. South Carolina also has a bill pending to allow opt-out. There are those who have told me they believe Florida will have a bill if the workers' compensation statute is on the legislative agenda for other reasons next year, such as reacting to the current supreme court challenges. 

It is worth remembering that many states have allowed employers to avoid workers' compensation participation. Most of these have limitations and restraints, and they are reasonably specific. Florida allows the use of an alternative benefit program, much like Oklahoma, if the employer negotiates that through a collective bargaining agreement, that is a contract for employment through a union or similar employee organization. 

With the recent decision in New Mexico regarding farm workers' and equal protection, some wonder if an equal protection argument by non-union employers might challenge any state's statutory decision to allow some employers an alternative ("carve out") to workers' compensation, but not to allow that alternative to all? That might be an interesting analysis. 

Will the opt-out come to Florida? The fact is that the collective bargaining alternative, which some insist on calling a "carve out" has already come to Florida. There are employers that have used this alternative and who believe strongly in it. So, some would argue that the alternative has already come and the real question is whether it will be expanded by court or legislative action to include a broader population of employers. 

An amazing morning of programs bringing a broader understanding of the history and potential futures of this thing to which we devote our professional lives. There is no end to intellectual challenges in workers' compensation. I count myself fortunate that there are so many who think, research and share perspectives on this concept and all that effects it.  


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