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Workers' comp derailment: expectations not met.

Two years ago RIMS formed the Risk Management Roundtable to identify trends and issues affecting the field and to develop mechanisms to broadly disseminate views and concerns. In March 1990 Risk Management published the Roundtable's first article, "The 1990s: The Decade of Risk Management," developed by its "new risk team." Focusing on how the risk management function is performed and how it is perceived, particularly by senior management, the article generated ample discussion.

In this issue the Roundtable's workers' compensation team explains how the system's original intent has been eroded. The team also offers advice on how various players, including workers, employers, doctors, lawyers, insurers, regulators and legislators, can help cure the system.

The following article was written by team leader Mark Carter, director of corporate risk management for The LTV Corp., with contributions from Woodrow Anderson, director of risk management, KPMG Peat Marwick; Thomas Duffield, vice president, risk management and insurance, Archer Daniels Midland Co.; Clark Fenn, director of risk management, Holyoke Hospital Inc.; Stanley Henslee, vice president of risk management, Ryan-Walsh Inc.; A. Herbert Johnson, director of risk management, Michigan Consolidated Gas Co.; Roundtable Chairman W. Michael McDonald; Fred Molineux, director of corporate insurance, Johnson & Johnson; and Carl Seaholm, risk finance manager, J.C. Penny Co. Inc. Mr. Carter also wishes to thank Richard Victor, executive director of the Workers Compensation Research Institute in Cambridge, MA, for his assistance.

This article is the opinion of the workers' compensation team members. It is their hope that others will be stimulated by it and engage in a dialogue for system reform.

Can you match the following statements with their probable makers?

----- "It's just a cost of doing business. We have no control."

----- "Let's run some more tests to be sure. But don't worry; it won't cost you a cent."

----- "We need to increase benefits and lower rates."

----- "If we controvert, we'll lose anyway. Let's just settle this one, so we can close the file."

----- "Safety is management's responsibility, not mine. Besides, all these safety devices just get in my way."

----- "It's already Wednesday. Why don't you just wait until Monday to go back to work?"

----- "You need to see our attorney, who'll make sure you get all that's coming to you. In fact, you may recognize him from his ads on TV."

----- "We don't make the laws; we just enforce them."

----- "He's not really hurt. Put him under surveillance."

----- "We can reduce your costs immediately. After all, we work for you."

----- "I want to come back to work, but the doctor won't let me."

----- "If we could just get adequate rates, we could do a better job."

----- "I have to balance the needs of my constituents."

A. Employees/Claimants

B. Organized labor

C. Medical Providers

D. Attorneys

E. Employers/Risk Managers

F. Insurance Carriers/Claim Adjusters

G. Consultants/Intermediaries

H. Legislators

I. State Agencies

So you see we understand a lot of the problems companies face because we're facing them ourselves.

JG: You should tell people, "We have instituted the policy." "This is what we do here at Argonaut." "This is what some of our clients do." That's what we need. Examples. Success stories.

SL: How about this? That contractor I told you about, in the three and a half years he's had that program, there hasn't been one single legal contest.

Assistance programs initiated by the

employer are twice as likely to succeed.

CW: What does it cost to test someone?

SL: The initial test will cost you about $30 per employee. But if anyone tests positive, you have to confirm it with a $60 GC mass spectrometry test. If you don't, you'll end up in court. A good example: anyone here taken Advil? I have a bad shoulder. I took two Advil on Sunday before I went out to play golf. Three days later I guarantee you I'll test positive for marijuana. Advil shows up as marijuana on the first screening. GC mass spectrometry would show I took 400 milligrams of Advil within the last 48 hours. So you must confirm any positive test.

MODERATOR What would happen if you took the lead and talked to builders about instituting a drug program? Would they think you give them some added value, or do they just look at cost?

DD: Cost, cost, cost. And production. If you have a testing program and your bid is the same as someone that doesn't, that's fine.

MODERATOR Wouldn't having a program enhance your reputation?

CW: We already have a reputation for delivering top quality work. Having a testing program might enhance it. But the bottom line is still production and cost. The builders would come back to us and say, "It's nice that you have a program, but so and so is 7% lower and we're going with them."

JG: Last week I bid a job and the guy said we were way too high. When I asked him if the guy with the low bid paid his comp premium, he said, "Frankly I don't care as long as I've got the certificate." It all comes down to money. That's always the bottom line.

LE: So whether you have a high or low accident rate really isn't considered?

JG: Only if it shows up in our price.

LE: Which is right where it will show up eventually.

MODERATOR Are you willing to consider instituting a substance program?

CW: We're always open to new ideas. I think what's really going to change things is when builders say, "Every contractor must have a drug program." If all the contractors and subcontractors have to pay the same costs to screen and test workers, then they're going to pass those costs along in their bids. When that happens, everyone competes on the same level again.

MODERATOR How often do you have to deal with abuse problems?

DD: We had a foreman call about a year ago, saying, "Hey, this guy's drunk or something. What didn't know. He cares about this company so he doesn't want to just say, "Hey you, get out of here." So he calls me. For insurance reasons, and we live in fear of insurance, I said, "Fire him." What the heck, if he injures somebody else, we're going to be in worse shape. And nothing ever came of it.

SL: The thing you don't want to do is tell the employee he's a drunk. You will land in court. Why? Because you're not a doctor, a district attorney, or a policeman. You have to teach your supervisors that while they may know a person is unfit for duty, they don't know why. You can terminate someone for being unfit for duty, but make absolutely sure you don't use the words "drunk," "alcoholic," "substance abuser," "cocaine addict," or anything like them. That is defamation of character. That person may be a diabetic without his insulin. You don't know until you test him.

DD: What you just said should be written down. That's one of the things we need. Guidelines to tell us what we can and can't do.

MODERATOR Is it difficult to find information about substance abuse in the construction industry?

CW: Like we said, we talk to other people in the industry, other people on the union board. But no, as far as I know, there's no good source of information that tells us what we can and can't do, or how to do it, or who else has done it.

LE: There are a lot of taboos about substance abuse programs out there. And a lot of them are based on misinformation. And a lot of decisions about what to do, or not to do, are being made based on that information.

MODERATOR Is it enough to know that everyone working for you is testing negative for illegal drugs and alcohol?

SL: No. There's something else you have to be careful about. Suppose your best carpenter suddenly can't hit a nail. Is he on drugs? Alcohol? Maybe. But it could be that his wife just left him, or his kid is in trouble. You don't know. And an assistance program is your best way of dealing with it. It lets you deal with a problem as a safety and productivity issue, without making you into a counselor. And remember that confidentiality is the key to any assistance program. You don't need to know who's in a program.

LE: Meeting performance standards is really a key issue. If you have a problem with someone, don't tell him it's because he's a drunk. You tell him it's because he's supposed to make ten widgets an hour and he's only made two. Tell him how to get help. If the problem doesn't go away, then you have to sit down and have a heart-to-heart talk about whether he's going to be able to remain an employee of your organization.

JG: But like you said, a guy breaking up with his wife isn't the same as being drunk or using drugs.

SL: Whatever the problem is, the last thing you want is to have him up there stacking trusses until he gets the problem taken care of.

LE: A company I worked for instituted their first testing program in 1979. They found that some of the guys who had been working for them for more than 25 years had been coming to work drunk every day. The supervisors didn't know it. They thought that was just the way the guys were.

CW: This is a hard-drinking, good old boy business.

SL: You bet, and some of those good old boys worked their way up to management and the board room. They knew what was going on and didn't do anyting about it. But things are changing. A lot of these guys are gone. There's new management, and they're very dollar conscious. They won't put up with this stuff. And do you know why? Because it increases their insurance costs. Like you said, Curtis, it all comes down to the bottom line. And the bottom line is that substance abuse costs your company, and every company in America, a whole lot of money.

If you are at all confident with your selections, you are no doubt involved in one of the greatest social problems of modern history. No, it is not global warming, environmental cleanup or the savings and loan crisis: It's workers' compensation. It's also likely that you are part of the problem, since no one involved has yet found a solution. (By the way, you will notice there is no answer key to the matching quiz. We didn't think you would need one. Besides, more than one answer could be correct, depending on your experience.)

The facts are indeed sobering:

* Employers spent $60 billion on workers' compensation insurance programs in 1990, according to Tillinghast.

* Workers' compensation will cost employers 3 percent to 5 percent of payroll in the near future, according to a March 1990 report in Nation's Business.

* The National Council on Compensation Insurance proposed rate increases exceeding 20 percent in 14 states in 1989.

* In 1989 insurers suffered an operating loss greater than $1 billion, with $1.17 paid out for each dollar in premiums, the NCCI maintains.

* Medical costs have soared to more than 11 percent of the gross national product, growing by more than 400 percent from 1975 to 1985 and representing 40 percent of all workers' compensation payments, according to Richard Victor, executive director of the Workers Compensation Research Institute.

* The NCCI says workers' compensation produces 45 percent of the property/casualty industry's net losses but only 13 percent of its premiums.

Let's think about where and how workers' compensation got off track, who the invited guests are, who the party crashers are and then what we can do, if anything, to extricate ourselves from this mess.

Workers' compensation is meant to be a compromise in which employers and employees exchange certain legal rights for guaranteed but limited benefits. The injured employee agrees not to pursue full compensation for lost wages in return for medical and living expenses. The employer overlooks considerations of fault in return for limited liability. Supposedly, a complicated and expensive legal battle is eliminated, thereby creating a no-fault, exclusive remedy.

"Workers' compensation is designed to provide enough support to sustain the injured worker during recuperation without dulling his incentive for a rapid recovery and return to the labor force," write Linda Darling-Hammond and Thomas Kniesner in "The Law and Economics of Workers' Compensation," a pamphlet published by the RAND Corp.'s Institute for Civil Justice. They comment that the early common law was more concerned with the liability of a master for damage done to third parties by a servant than with injury to a servant. And, to obtain compensation, the employee normally had to sue his or her employer, hoping to defeat permitted common law defenses. As noted by Bruce Vanner in an article in the April 1988 issue of Personnel Journal, workers' compensation would not contemplate claims for such tort type damages as "pain and suffering" or inconvenience but merely an expedient return to work.

In spite of original intent, explain Ms. Darling-Hammond and Mr. Kniesner, workers' compensation has become heavily adversarial, replacing disputes over who is at fault with disputes over what is at fault (course and scope) and the effect of the accident on the victim (degree of impairment and its impact on future wage earning capacity). Expanded coverage and broader definitions of liability have created an atmosphere of uncertainty, exactly the opposite of what insurance is supposed to do. Furthermore, lines between workers' compensation and tort systems are being crossed, permitting dual compensation in some instances and violating the insurable concept of equity (return to a pre-accident condition but no greater). Also, many workers believe that workers' compensation is an entitlement, not a benefit.

Liberalizing trends such as claims for psychological stress and heart disease, which expand the scope of workers' compensation, are causing original system goals to be re-evaluated. Also, many employers believe they are being forced to pay for the normal aging process under the guise of workers' compensation, writes Mr. Vanner. All original "platform planks," including encouraging accident prevention, minimizing societal costs, non-adversarial dispute resolution, guaranteed benefits and absolute but limited employer liability, are under attack and are increasingly unattainable. Management and labor, the two parties that are supposed to benefit from the system, are kept at loggerheads by other participants.

The employer and employee suffer the worst direct and indirect costs. Even though costs are growing dramatically, the legitimately injured employee is not nencessarily the beneficiary and is, in fact, losing ground due to the reallocation of the workers' compensation pie. The employee is also affected when increasing costs make his or her employer less competitive.

"Costs" go beyond indemnity and medical payments. In fact, indirect costs of job-related injuries can range from two to 10 times that of direct costs. Indirect costs include property damage, production delays, replacement labor and increased expense, to name a few. Such costs decrease or, in a worst case, wipe out profits. Eventually, the employer must consider such alternatives as layoffs, delaying or cancelling job-creating expansions, subcontracting or transferring operations to more favorable jurisdictions, rejecting workers' compensation (where permissible) or other internal cost-cutting measures.

As with all things, the overall cost of workers' compensation ultimately rests with the consumer in the form of higher prices for goods and services. Now, let's take an in-depth look at the cast of characters in our drama.


The injured worker is the one who brings all of us together in the first place. Society has decided that he or she needs help in the form of medicl care and replacement of at least a portion of lost wages. The employee gets the appropriate medical care, is theoretically able to make ends meet while disabled and does everything possible to return to work quickly because he or she and the employer will be better off. When at work, the employee follows safety rules, uses proper job tools, is a positive influence on peers and cooperates with management. It sounds so simple.

Perhaps, the modern worker believes in a right or entitlement to income, which has been enhanced by peer pressure, legal seduction, employment conflicts and presumed deep pockets of arms-lenght insurers (other people's money). The gradually liberalized system's leniency and nebulous requirements for benefits can create a bonanza for nominally injured workers. Workers' compensation can also become a vehicle for revenge against management, resulting from perceived job discrimination, labor unrest or poor work performance. There has been a pervasive erosion of the work ethic when others are observed getting a "free ride" and when staying home is more lucrative than working, especially if one is near retirement age. The rules of the game make it difficult to prove an employee was injured on the job, but impossible to prove the injury did not happen there.

The seriously injured, relatively well-paid worker does have some legitimate gripes, however. The $2,000- to $4,000-a-month factory worker simply cannot make it very long on benefits which provide, in some cases, only one-half of former net income. Car payments, house payments and hungry mouths to feed make attorney loans, lump-sum settlements and traded away, future medical care enticing. Seeking to increase recoveries, claimants are challenging exclusive remedy doctrines by suing employers, adjusters and carriers for bad faith, intentional acts or torts. Therefore, laws need to be rewritten to make benefit delivery more equitable, but attitudes need changing as well.

Organized Labor

This is not the proper forum to debate the merits of the labor union movement in America. Admittedly, the exploitation of labor during the Industrial Revolution, including the failure of management to accept responsibility for workplace injuries, fostered union development. Accepting the fact that labor is indeed organized, what does it bring to the table in the workers' compensation process?

As a goal, unions should help ensure that their members are treated fairly within the law. If unions can agree that injuries are disruptive, costly and threatening to employers' ability to provide employment, management and labor should share the following goals:

* encourage rehabilitation and early return to work;

* contain claims costs and indirect costs affecting production;

* improve loss prevention and safety through rule promulgation and enforcement;

* discourage fraud and malingering;

* help inform employees of their rights and the impact of workplace injuries on all parties;

* resolve disputes within the system; and

* promote cooperative attitudes, improve communication and eliminate controversy.

Unfortunately, an ingrained mistrust of management has created an adversarial relationship, causing confusion and a mutual lack of communication and cooperation. Workers' compensation is seen as an entitlement and part of a benefit package to be maximized at the employer's expense. The direct and indirect costs are not seen as impacting profits, wages and job creation due to an "I got mine" attitude.

The insurer and claims adjuster are viewed as management's "hatchet men," whose only interests are to minimize benefit payments by withholding information concerning the claimant's rights. The result is that contract with the employer and carrier are discouraged, leading to attorney involvement and "dueling doctors." In some cases, workers' compensation is advocated as a means to supplement unemployment insurance and group benefit programs, which may have deductibles, co-payments and no wage loss indemnity.

If organized labor continues to see employers as the enemy, workers may find themselves winning a battle here and there, but they will lose the war by forcing their employers out of business and losing the jobs that supposedly expose them to injury.

Medical Providers

Medical expertise is used in injury/illness treatment, rehabilitation, injury prevention, workplace ergonomics and safeguards and to assess the degree of impairment. The treating physician has historically had complete control over the extent, duration and type of medical care, under the assumption that the well-being of the injured worker was the only concern.

Unfortunately, most disputes arise over differing medical opinions from the supposedly objective employer's doctor and claimant's doctor. With medical costs increasing dramatically to almost one-half of the total cost of a workers' compensation claim, some distributing allegations have been made against the medical community. The aura of professionalism and complex jargon is being penetrated through peer and case review, with reasonableness of cost and treatment determined by establishing "pars" for similar cases. Hampering cost containment efforts is the perception that doctors belong to a closed fraternity that is reluctant to criticize its members, except for blatantly unethical or illegal behavior. Contrary to normal economic principles, medical competition seems to increase costs rather than decrease them. Medical providers, in general, may be unfamiliar with the mechanics of workers' compensation, viewing it only as additional "red tape." In addition, providers often do not know the injured worker's capacity to perform his or her old job or a light duty position.

Statutory requirements for full coverage of all medical expenses generate little incentive to control costs. Workers' compensation is an easy vehicle for amortizing health care inefficiencies and underutilization of expensive, high-tech services and equipment, including such diagnostic testing as magnetic resonance imaging, as well as occupational rehabilitation, therapists, prosthetics and exotic prescription drugs. Excess capacity also results in unnecessary or prolonged treatment. High medical bills, known legally as "specials," generate more lucrative claim settlements, while thwarting allegations of malpractice. The more extensive the treatment and resultant lost work time, the less likely the complaints of inadequate care. In general, the belt-tightening in non-workers' compensation medical care is pushing both employees and medical providers into workers' compensation to take advantage of its less restrictive coverage and to avoid co-payments.

The medical community, including professional societies and medical schools, needs to learn more about occupational injuries and their prevention and to work more closely with insurers and employers to overcome their inherent mutual mistrust. Medical providers must realize that employers and insurers are the ones paying the tab. Cooperation and information sharing should result in fewer disputes, expedited rehabilitation and more business for those willing to work with the system rather than against it.


Are attorneys necessary in a perfect world of workers' compensation, where all claims are properly and fairly administered by state agencies? Even if the agencies do their job effectively, are the employee's rights and the issues so complex and confusing that only private legal counsel can adequately represent the best interests of the employee/claimant? Are state agencies so inept and insurers and employers so bent on depriving the injured worker of his or her statutory rights that only a court can maintain order?

The free enterprise system suggests that where there is a need, real or perceived, someone will fill it. The mere presence of so many lawyers who handle nothing but workers' compensation cases should indicate we have a problem. "Too frequently lawyers urge their clients to inflate their claims or they assist them in presenting blatantly fraudulent claims, even going so far as to persuade medical personnel to prostitute their ethics," according to the November 1990 issue of Merritt Risk Management Review. "These ugly tactics and the opportunity for self-aggrandizement of unscrupulous, money-hundred lawyers has raised court costs and has inflated awards. The public has been sucked into this situation by the unbridled advertising of services by lawyers, like so many competing brands of detergent."

The no-fault, exclusive remedy basis of workers' compensation has been infected by tort type argument. Disputes and controversy are encouraged, and labor is pitted against management. Expensive litigation and allegations of bad faith and gross negligence are threatened to enhance settlement values. Subjectivities, including the degree of impairment and loss of wage earning capacity, are taken advantage of. And guess who uses political clout to change laws in their favor?

In some cases, the legislators themselves are workers' compensation attorneys. To the extent access to the courts is allowed, state agency control is undermined. If legal assistance is desired, it should be available, but it should be paid by the requesting party and should not lead to further causes of action or inflated benefits.

Employers/Risk Managers

Before workers' compensation laws, the employer had no responsibility for providing medical attention or disability income, which meant the ill or injured employee usually found himself or herself out of a job. The employee was presumed to have assumed the risks of employment. Workers' compensation, however, demands that employers enjoying the profit of a product or service assume the cost of injuries or illnesses incurred in producing that product or service, explain Ms. Darling-Hammond and Mr. Kniesner. Even though the pendulum appears to have swung against the employer, there are still many areas requiring proper management. The employer exercises almost total control over safety/loss prevention, return-to-work programs, early contact of injured workers, communication flows within the business environment and the accountability of supervisory management. Simple, sincere concern for the welfare of employees as assets needing protection can greatly enhance loss prevention and control efforts, short of outright fraudulent intent by the employee. The profit motive need not be mutually exclusive of employee goodwill.

Because this article is authored by risk managers, it is confession time for employers, particularly those with supposedly sophisticated risk management programs. As the lawyers would say, a "higher standard of care" applies.

Until recently, there has been a widespread lack of appreciation for the direct and indirect costs of workers' compensation and their impact on productivity and competitiveness. Once laws were passed, like taxes and utility bills, workers' compensation was deemed a cost of doing business, with employers at the mercy of the system. No ne was accountable for this uncontrollable overhead expense. Even when a risk manager or safety engineer did manage to show a little interest, operating or training which appeared to get in the way of production goals.

Employers and their risk managers waited too long to take action, and it may be too late to reverse the trend. While the business community was asleep, the plaintiff attorneys and others were hard at work lobbying or even becoming lawmakers.

A lack of concern for employee welfare encourage disputes and litigation. There are plenty of other suitors vying for the neglected emplyee's affections. There has been a lack of post-injury follow-up, with employers failing to encourage rehabilitation and to provide meaningful return-to-work programs, in concert with the medical providers who must be made aware of the job's physical demands. Employees are not contacted or informed of their rights, leading to confusion and attorney involvement. And the employer/risk manager overlooks the obvious: requring maximum effort from the insurance carrier and claims adjuster, who sometimes have differing agendas. It is time for the employer and risk manager to anticipate and plan rather than merely react and complain.

Insurance Carriers/Claims Adjusters

You may remember from your first insurance class that insurance is a good thing to purchase. Potentially catastrophic but uncertain loss exposures are financially transferred in exchange for small but certain premium payments. Unlike many other coverages, employers must have workers' compensation insurance, except in a few states. Because of the sensitive social nature of the employee's right to benefits, a financial guarantor is required in case the employer cannot or will not pay. Insurance is also supposed to bring certainly, efficiency and security to business dealings.

Workers' compensation insurers should be leaders in loss prevention and control. They should be leaders in cost containment, dispute resolution and claims adjusting. They should be able to achieve equitable settlements without alienating or confusing the claimant or those who pay the premiums. They should contest frivolous claims and expedite legitmate injuries. They should be able to convince state agencies, legislators and consumers of their plight if workers' compensation ceases to be profitable.

Carriers cry foul over inadequate rates and unfair competition from self insureds and state funds. Assuming adequate rates were granted, why would there be more than a token interest in loss prevention and control? The situation is similar to that of a utility company's questionably sincere interest in energy conservation. The demise of the long-term, good faith relationship between insuerers and insureds, exemplified by the 1985-86 hard market, has not helped either.

Claims are settled prematurely and expensively due to threats of bad faith, gross negligence and unfair claims practices. As adjusters attest, the only good file is a closed file, which also has the benefit to the carrier of limiting future medical exposure. All these actions serve to overpay small, questionable claims, underpay serious claims and compound system inequities. Unfortunately, premium payments, as well as losses, have become catastrophic, with employers demanding relief. Insurers must do a better job of pleading their case and trying to reduce losses and associated costs.


Along with the increasing complexities of workers' compensation have come an array of problem-solvers other than the typical parties. The new helpers include specialist in cost containment, case management, utilization review, fee schedule auditing, safety/loss prevention, back injury training, claims auditing, job ergonomic training, employee leasing imaginative funding arrangements, surveillance and investigation, accident history and statistics. Intermediaries who have assisted in the placement of commercial insurance are included among the problem-solvers. These brokers/agents, however, have formed subsidiaries to provide some of the newer services.

The added value or success of some of these programs is difficult to quantify, especially in the short run. If the employee is returned to work sooner, unnecessary services are reduced or eliminated, disputes are resolved, losses are prevented, fraud is exposed or a a coverage is competitively placed, then a benefit is derived. Such third parties, if objective, may be able to offer some fresh ideas.

As expected in an area where measurement is difficult, some service providers have become parasites who add to the cost of an already overburdened system, promising much but producing very little. Claims settlement and return to work can even be impeded rather than expedited. Or multi-line service providers can become involved in conflicts of interest, as in the case of a company that provides claims adjusting audits and both claims adjusting.

The term "caveat emptor" is especially fitting when it comes to purchasing workers' compensation-related services. However, the desperate search for solutions puts tremendous pressure on employers to try anything that looks even remotely promising.


The base of power and authority to design and amend workers' compensation laws to protect both the employee and employer rests with positicians. The set the structure and authority of state commissions, insurance boards, assigned risk pools and, if applicable, state funds. It sounds so simple to tell our legislators to pass bill that guarantee certain benefits for injured workers, while preserving reasonable benefits costs so that tax revenue-producing businesses can operate profitably.

However, attempts to balance the needs of the parties may have gotten bogged down with the presence of simply too many parties, constituents and special interests. Reform efforts become so diluted that everyone losses, or the interactive chemistry of the variables is altered so that the problem gets worse, not better. Although a high level of sophistication is presumed for legislators, most have only a cursory understanding of the issues due to pressure on them to know and speak intelligently about so many topics. Staff members, experts and loyal supporters are sought for input, which can be heavily slanted toward the position of powerful lobby groups.

The tendency in reform efforts is to attack symptoms, such as escalating premiums, rather than well-documented underlying causes. The crisis in workers' compensation, however, is at least finally getting the attention it deserves, and the right questions are being asked.

State Agencies

With what might be considered both a problem and an opportunity, state workers' compensation commissions and insurance boards are faced with implementing laws written by others. They are charged with enforcing and administering the law, which includes resolving disputes, with the intent to speed benefit delivery and ensure equitable treatment of all parties. Agencies should also provide and maintain a solvent market to which risk can be transferred at adequate but reasonable rates. Within the law, agencies can provide incentives and penalties for compliance and abuse, respectively.

Agencies, in addition to suffering from typical bureaucratic impediments and inefficiencies, are subject to political meddling, which can skew the balance of conservative vs. liberal or employer vs. employee. They also languish under the fact that the courts, not they, may make the final decision and are accused of merely deciding on the basis of probable judicial outcome. Therefore, claims lose their indentity and fall into ranges.

The old saw of "overworked and underpaid" is all too true for some agency personnel, resulting in wide variations in quality and high turnover. Regulators are slow or unable to recognize and react to industry problems such as rising rates, insolvency and safety, at least partially due to inaccurate, out-of-date statistics. Insurers are saddled with ever-increasing residual market loads, forcing restricted underwriting or complete withdrawal, while the public clamors for lower rates and better benefits. As reforms are enacted and workplace injuries become more complex and expensive, state agencies will get bigger. But will they get better?

Looking Ahead

Now that we are sufficiently depressed about the past, where are we headed? What trends are apparent? Are there any viable solutions that can be implemented before it is too late? Or have we witnessed the beginning of an irreversible "center care meltdown" of workers' compensation?

One problem with potential reforms is that the workers' compensation beast is always evolving. It is now possibly immune to what might have worked yesterday. For example, work force demographics are changing. The American worker is aging and consequently will have perhaps fewer but more sever injuries, requiring longer recovery periods, says Mr. Victor of the Workers Compensation Research Institute. The continued growth in service and high-tech industries and white-collar occupations will no doubt generate even more exotic forms of stress, occupational disease and cumulative trauma.

If workers' compensation continues to be unprofitable for insurance carriers and states increase demands for additional services and the funding of residual market shortfalls, commercial carriers will continue to withdraw their capacity. As the noise level increases, it becomes more likely that the federal government will meddle in all areas of health and disability, leading to insurance carriers and employers incurring even more financial responsibility. The states will hopefully realize that they have common problems, promoting a united effort.

Excesses in the medical community alone may bring about the predicted marriage of workers' compensation and employee benefits. This would also combat cost shifting due to cost containment efforts in group health benefits. A combined 24-hour disability program is not difficult to envision.

If the states are seen as incapable of cleaning up the mess, Uncle Sam may nationalize workers' compensation, which would at the very least contribute to uniformity. An even more frightening scenario is the possibility of outright socialization of workers' compensation, if the current system is deemed irreparable and requiring replacement, financed by taxes on the "sucker" of your choice.

Although they are unlikely to be embraced, employers can consider numerous effective possibilities. Risk managers should ask themselves the following questions:

* Should employers with poor loss records relative to their industry be dealt with harshly by regulators and insurance carriers?

* Should employees filing verified fraudulent claims or employers refusing legitimate claims be treated as the criminals they are?

* Should employers be allowed to give financial or other incentives to employees who donnot hire an attorney or have a lost-time injury during a given period or who use an employer-recommended medical provider or turn in fellow employees making fraudulent claims?

* To combat abuse and cost shifting, should employees be required to make co-payments or pay deductibles for all medical charges or for refusing to use recommended service providers?

There is no intent here to rehash the various state reform measures or other laudable efforts that are being attempted. It is hoped that genuine improvements will survive, will be given appropriate credit and will be copied by other jurisdictions. The goal of this analysis is to encourage each reader to examine his or her role and, by improving that small but controllable segment of the workers' compensation problem, to contribute to overall reform.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Author:Carter, Mark
Publication:Risk Management
Article Type:Cover Story
Date:May 1, 1991
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