Workable workers' comp.

Composed of former foes, an NCSL blue ribbon panel on workers' comp found enough common ground to come up with some solutions.

It was a desperate move ... but the gamble paid off.

Oregon had become a statistic that lawmakers didn't like--it had one of the most expensive workers' compensation systems in the country and one of the lowest benefit structures.

Oregon insurers, like those nationwide, were becoming more and more reluctant to underwrite workers' compensation because they were not collecting enough in premiums to cover costs, much less make a profit. Owners of small businesses were faced with premiums geared to the steadily increasing cost of medical care. Benefits for injured employees were often delayed and inadequate.

With the entire system threatening to crumble, Governor Neil Goldschmidt called representatives of labor and management to the executive mansion in 1990. They were told to reach a compromise and save the system. The governor promised to keep pressure groups out of the negotiations. The outcome was major reform that resulted in higher benefits and lower costs.

The key was bringing together people locked tightly into adversarial roles and opening the issue for discussion, negotiation and compromise.

When workers' comp is on the agenda in the legislature the special interests involved are only too eager to provide information and statistics. But there is seldom any agreement among the groups.

What if you got all those folks together and made them decide what they could live with in workers' comp reform and make them decide how the system should be fixed? Governor Goldschmidt did it in 1990 with business and labor--literally locking them into a room together.

NCSL did it in 1992 with a blue ribbon committee of medical, insurance, business, labor and legal experts. For over a year, 24 men and women met periodically to dissect the workers' comp system and recommend solutions to the recurring problems faced by most states.

Workers' comp systems vary widely from state to state, but the problems for lawmakers are similar. Employers, trapped within spiraling costs, demand that something be done. Insurers, snared in one of the worst lines of the business with its high risks and escalating payments, exert equal pressure. Attorneys and unions demand rights for injured workers. The doctors, chiropractors and therapists who serve the injured worker don't want the system saved at their expense.

Amid this cacophony is the legislator, attempting to sort out the demands, the needs, the requirements, the necessities of the system. Much like fighting the multi-headed Hydra of Greek mythology, once one head or problem is cut through another grows to replace it.

The basic goal of workers' comp has not changed since the system was created in 1911--to provide benefits promptly to injured workers at a cost that is reasonable to employers.

Cost is what's become the problem. Nationwide, it is anything but reasonable. In 1972, workers' compensation claims amounted to $5.8 billion; by 1978, the figure had risen to $9.7 billion. In 1982, claims totaled $22.5 billion. And this year it is estimated that claims will hit $80 billion.

Ironically, a system designed 81 years ago to minimize litigation between employees and employers now is enmeshed in lawsuits leading to delays, smaller settlements for injured workers and increased costs.

The demands on the system in 1993, coupled with advancing medical technology and an increasingly more complex workplace, have made it generally unmanageable. The major problems recur from state to state: the high cost of medical service delivery, inefficient administration of the system, controversial rate-setting procedures, ineffective means of resolving permanent partial disability claims and a lack of attention to safety as a means to reduce injuries and costs.

Focusing on these issues, panel members formed consensus positions invaluable to legislators under fire from the medical, legal, insurance, labor and business communities. The key recommendations are to:

* Control medical costs through the use of managed care.

* Enact provisions to ensure healthier, safer workplaces.

* Encourage labor and management cooperation, possibly through the creation of advisory councils.

* Create efficient, professionally staffed administrative systems.

* Fund the system, if necessary, from sources other than general revenue such as assessments on carriers and employers.

* Provide close review of rate-setting procedures.

Medical Issues and Delivery of Services

The rising cost of health care is one of the primary culprits in skyrocketing workers' comp costs. Employers now pay $80 billion a year to compensate and care for injured workers with $4 of every $10 going toward medical bills. While general health care costs increased 8 percent a year over the last decade, workers' comp saw an 11 percent annual increase.

Until recently, state workers' comp systems have been run separately from other health care programs. The result has been fewer cost controls. To offset the lack of cost containment and possible cost shifting from the other sectors, the panel recommends "use of at least some of the cost and quality control tools that are common to the rest of the health care network."

Whenever possible, workers' compensation programs should be coordinated with health care delivery and payment programs already operating within a state--rather than simply adopting the techniques these entities use to control the quality and cost of services. For example, if an employer provides general health care coverage for employees, work-related injuries and diseases could be covered within the same plan and be subject to the same controls.

The particular issue of cost containment is currently being explored in California and Pennsylvania where lawmakers are attempting to limit how much physicians and hospitals can charge for specific services.

Pennsylvania's efforts to change its workers' comp system have not been met placidly, however. Buses loaded with 1,500 business executives arrived in Harrisburg, Pa., last September. The convoy was designed to pressure lawmakers for aggressive cost controls. Labor unions countered with a series of demonstrations in the state Capitol.

In a less strife-marred attempt, Oregon is managing to curb medical costs--and to avoid labor's strong resistance to "company doctors"--by allowing workers to select workers' comp physicians from a list of state-licensed health care networks. Health care networks, not specific doctors, are chosen by an employer's insurance company. These, in turn, demand that doctors justify the need for surgery and respond quickly to questions about whether an injured employee can return to work. They must also monitor the time a worker spends in the hospital and review treatment with fellow physicians.

Safety and Health

A major key to reducing costs and helping employees stay productive is to keep accidents from happening.

"Without workplace injuries, illnesses and fatalities, there wouldn't be a workers' compensation crisis," says Gary Weeks, Oregon Department of Insurance and Finance.

"The greatest leverage in controlling costs has nothing to do with rates and everything to do with what employers do in terms of safety and employee treatment after injuries," agrees Richard W. Palczynski of Travelers Corporation.

To encourage employers to provide safer workplaces, various states have attempted to use workers' compensation statutes or other laws to encourage business efforts to prevent job injury, illness and death.

Various tools to enhance workplace safety can include mandatory safety and health committees, safety plans or programs, deductible plans, education programs and research.

Legislation aimed at improving safety will require improved data collection to identify and describe occupational injuries and illnesses and to point out prevention efforts that could be used as models by other employers.

Specific information--collected, compiled and analyzed--on what has occurred in a workplace could be used to prevent future injuries and occupational diseases.

Efficient data collection would also provide the information needed to administer the state workers' comp system and resolve disputes; analyze the performance of the system and compare it with other states; and provide information for state regulatory agencies and insurers for rate decisions.

General recommendations from the NCSL panel to states interested in increasing workplace safety and health are:

* Identify high-hazard employers and develop programs to mitigate injury and illness.

* Explore all available means to encourage safer, healthier workplaces.

* Encourage technical engineering, loss control and environmental health support for employees. State programs that provide consultation services to employers can be valuable. States with concentrations of industry could enhance workplace safety and health by supporting research to increase the understanding of specific industrial hazards and to indicate the best ways to prevent injury and illness from these hazards.

* Coordinate the myriad safety and health programs now being run by business, states and the federal government to maximize duplication of efforts and address new problems. Under the auspices of state government, groups of employers, various federal, state and local government agencies, labor, academics, insurers, and safety and health professionals could be organized to establish priorities and monitor the effectiveness of policy.

Florida identifies employers with significant workers' comp losses and requires them to provide safety training to employees. Louisiana gives discounts on workers' comp rates to high-risk employers who implement safety programs. New Mexico gives employers authority to implement safety programs and to provide bonuses to employees if certain criteria are met. Maine requires that insurance carriers offer workplace health and safety consultation. Texas has a toll-free hotline for reporting safety violations.

Legislative reforms aimed at increasing workplace safety enacted in Texas in 1991 have provided some relief for employers in terms of premium costs and show the benefits of good safety programs. A recently created state fund is giving rate reductions of 7.5 percent to businesses with good safety records; businesses with exceptional records receive a 10.5 percent rate reduction.

And, in some cases, the private sector is pushing the program. Liberty Mutual Insurance Company and Travelers Corporation have saved money for businesses by dispatching safety auditors to factories. The inspectors look for health hazards and recommend ways to prevent workers from hurting themselves.

Labor/Management Cooperation

A corporate culture that stresses labor/management cooperation and communication is another possible cure for some of the ailments plaguing state workers' compensation systems. Many of the headaches and costs of workers' comp can be avoided with a cooperative attitude on the part of employers and employees.

Creation of labor/management advisory councils to provide continuing oversight and input for a state workers' comp agency and the legislature is one means toward this end. Such councils have the added bonus of helping refocus attention on workers' compensation as a labor/management issue.

"A good system of workers' compensation is at least as important to employers as it is to workers or vice versa," says Peter Barth, professor of economics at the University of Connecticut. "They are the central parties the system is designed to serve, and a workers' comp system that doesn't have their support and cooperation is very likely to go off track."

Barth says when labor and management agree on the details of workers' comp legislation or administration, lawmakers will buy off on the plan. "This also helps avoid the endless controversies that surround this type of legislation," he says.

System Administration

An efficient, professionally staffed administrative system may require additional funding, but will result in long-term savings by providing more efficient delivery of services, the panel concluded.

Specifically, a good workers' compensation administration should:

* Ensure a process for formal resolution of disputes. The staff could include professional hearing officers serving fixed terms.

* Take an active role in the education of all participants in the process.

* Actively enforce all requirements of state workers' compensation law.

* Collect appropriate data to help all parties to the system understand how it is performing and what it costs.

* Provide a level of administrative review of individual case decisions within the workers' compensation agency to ensure consistency.

A primary goal of the administrator should be to provide as much consistency as possible throughout the system.

Funding

An overhaul of any workers' comp system is not to be taken lightly--it will cost money. Adequate funding for reforms is critical. The panel recognizes that state budgets are tight and may not be able to provide additional funding.

Currently, 35 states fund their workers' comp agencies primarily from assessments on carriers and self-insured employers (this includes six exclusive state-fund states--Nevada, North Dakota, Ohio, Washington, West Virginia and Wyoming). A number of states levy assessments only on insurance carriers. Oregon and New Mexico charge only employers and employees.

Additionally, many state agencies use revenue collected from fines, penalties and interest charges--separate from money used to pay for personal damages--to fund workers' comp administration.

For states using a percentage assessment on employers, the panel suggests an assessment that ties directly to workers' comp benefits paid or premiums--rather than a percentage of total payroll.

Panel's Work is Well Received

The work of the blue ribbon panel has already served legislators in Arkansas, California, Georgia, Kansas, Louisiana, Maine, Missouri, Nevada and Wyoming. Representative Ed Pineau, who says legislators all too often get information from sources who have "a vested interest in what information lawmakers view and act upon," praises the panel's report and says it helped Maine legislators with a special session on workers' comp reform last fall. "It was an answer to the legislator's dilemma of where to acquire accurate, timely and accessible information," he says. "The report increased understanding of the five topic areas, enhancing deliberations on Maine's proposed legislation."

Kansas Senator Alicia Salisbury, chairman of the blue ribbon panel, says the effort was generally beneficial.

"Workers' compensation is not only very complex, but very politically contentious. The task force and blue ribbon panel brought disparate efforts and disparate views together," she says. Their work gives legislators a tool for understanding "where there is consensus on problems of the system and what changes have been beneficial in other states."

24-Hour Coverage for Workers' Comp Claims

It's controversial and still a huge if, but a concept dubbed "24-hour coverage" could radically change the workers' compensation system as we now know it, particularly if it becomes part of the health care reform package President Clinton sends to Congress.

Medical bills of people who are hurt at work are paid for by workers' compensation insurance provided by employers under state law. Under "24-hour coverage," there would be no difference between occupational and nonoccupational medical claims.

So far there's no agreement on how--or whether--such a system would work. There's no single definition.

The most comprehensive proposal describes a complete system of medical and disability benefits available to individuals regardless of employment or financial status, without regard to whether the cause is work-related or not.

The simplest definition describes a management system that ensures that a worker's claim is covered under the correct insurance policy, i.e., workers' compensation or group health or disability, and that there is no double recovery. There are many variants between these two extremes.

Proponents contend that the 24-hour concept would:

* Reduce the chance of double recovery for the same loss.

* Reduce litigation and increase efficiency by devising a single system.

* Provide for more complete and efficient data collection and reduce paperwork.

* Reduce the cost of medical treatment through streamlining and consolidating the various programs.

Those who question the 24-hour coverage idea:

* Do not believe that combining coverages will save money, as long as current benefit levels are maintained.

* Believe that states will be precluded from regulating private, employer-based, 24-hour coverage because such regulation is pre-empted by the federal ERISA law.

* Question whether proponents can convince employers that the exclusive remedy of workers' compensation will not be lost.

* Believe health care cost containment techniques, such as managed care, can take place without a 24-hour coverage plan.

* Have not heard any explanation about the impact of splitting coverage on disability experience, availability of coverage or the states' ability to police proper delivery of benefits.

* Have yet to see any proposal that adequately deals with the loss of coverage because of change in employment status or insurer, especially if the coverage is not occurrence-based like today's workers' comp insurance.

Several states are experimenting with 24-hour coverage through pilot projects. Florida and Alaska enacted legislation in 1990 that opens the door for innovations based on the 24-hour concept. Florida's law specifically provides for 24-hour medical benefits and employee-paid deductibles and co-payments. Alaska's law involves the design of a universal health care plan with an option to incorporate its workers' comp system. Maine, Minnesota and California enacted legislation in 1991-92 allowing for 24-hour coverage projects.

Many unanswered questions surround the implementation of 24-hour coverage. How will disability benefits--one of the largest cost-drivers in workers' comp--be handled? Is it right to require employees to contribute through co-payments and deductibles for occupational health care coverage as they do for nonoccupational health care? Will 24-hour coverage detract from safety incentives and cost containment incentives? The states, the Congress and the president are searching for the answers.

Brenda Trolin is NCSL's workers' comp and insurance expert. Dianna Gordon contributed to this story. For a copy of the blue ribbon panel's report call Trolin at [phone].