The Grand Bargain in Workers Compensation Is Dead As Opt Out Grows Says Insurance Industry Journal

http://www.insurancejournal.com/news/national/2017/03/06/443576.htm
Why Workers’ Compensation Is Especially Needed Now: Report from WCRI Conference
By Andrew G. Simpson | March 6, 2017

After decades of managing costs for employers, it’s time for workers’ compensation professionals and public policymakers to turn their attention to the needs of injured workers and think of themselves more as players in a broader safety net, workers’ compensation experts were told last week.

Panelists and audience members at the Workers’ Compensation Research Institute (WCRI) conference in Boston stressed the need for a credible system for injured workers especially as other social safety nets including job security, employer-funded pensions and health insurance are being weakened.

They also challenged the professionals and public policymakers to more clearly define what, if any, responsibilities they have to those now falling outside the workers’ compensation system, a population that includes older workers with chronic illnesses and long-term disabilities, workers including undocumented immigrant laborers who are injured on the job but afraid to file claims, and sharing or gig economy workers now classified as independent contractors and not eligible for workers’ compensation.The WCRI participants acknowledged that the workers’ compensation industry is still smarting from Department of Labor/OSHA and ProPublica reports of the past several years. These reports alleged that the workers’ compensation system is not living up to the “grand bargain” promised workers: that they would be taken care of in the event of a workplace injury in exchange for giving up their right to sue their employer over the injury.
The reports accused the industry of failing too many injured workers. One of the reports, a 2015 Labor Department-OSHA report entitled, “Adding Inequality to Injury: The Cost of Failure to Protect Workers on the Job,” concluded that the costs of workplace injuries are borne primarily by injured workers, their families and taxpayers’ support of the social safety net.

How Workers’ Comp Got Here

Bruce Wood, long-time general counsel for the American Insurance Association (AIA) who recently retired, said stakeholders spent the past few decades trying to recover from a financial crisis in 1980s and 1990s when costs were exploding and the system was in danger. “You had rates that were not politically supportable, so you had what became suppressed rates. You had an absolute crisis. You had a flight from voluntary markets to residual markets, and many states had to come to grips with that,” Wood said.

They came to grips by approving the use of measures of impairment as proxies for disability, mandating the use of fee schedules, and imposing caps on disability benefits.

States also raised the bar on compensability, requiring work to be a major or predominant contributing cause of an injury.

“Why was this? Well, because mostly through case law, what was considered a workers’ compensation claim was constantly being expanded, and it was thought to be inequitable and it was more costly. So the policy objective here was to call for a stronger nexus between the injury and the workplace. We can debate how effective that’s been. But, you know, it wasn’t a crazy notion. There was a policy justification for doing that,” Wood said.

States also gave employers greater authority to direct medical treatment. This led to panels and networks and eventually utilization review protocols, treatment protocols, evidence-based medicine and more.

“All of these issues continue to animate the debate today,” Wood said.

AIA’s Wood acknowledged that the current intense scrutiny of workers’ compensation may be related to the uncertainty over the traditional safety net tied to job security, health insurance and retirement benefits.

The workers’ compensation system could also see even more scrutiny if changes to the Affordable Care Act leave more people uninsured, WCRI attendees were advised by speakers a day earlier.

Wood  is troubled that the scrutiny has spread to the point where some employers and states are now championing the “opt-out” movement, which he said is not in keeping with the grand bargain.

It used to be that when there was a problem with a state’s worker’s comp system, the stakeholders would come go together the legislature for a fix, according to Wood. “The debate was always within the four corners of an accepted public policy, social policy system. A debate between the 45 yard lines,” he said.

But opt-out is changing the game. “With opt out, it’s like a debate between the goal lines. They think we can just abandon the system, we’re gonna’ set up our own system.”

Wood now worries that while the grand bargain is not dead, “there seem to be some fissures in a decades-long consensus. ”

Worker Perspective

The problem with the focus of the past few decades has been the absence of the worker perspective, according to Dr. David Michaels, a George Washington University professor of occupational health and, until recently, assistant secretary for labor with OSHA.

“A lot of how you see the world depends on where you’re coming from,” he said. “Many workers who are either in the system or should be in the system are not doing well at all. That is the reason we’re having this discussion.”

Michaels said there are “aging people who are invisible to everybody who works in workers’ comp” and claimed the number of people who get chronic, work-related illnesses from occupational exposure but never make workers’ comp claims is significant. “Almost none of those people actually ever seek medical compensation for some good reasons and some bad reasons. But they’re not covered at all, and none of those costs go into the system,” he said.

He also identified “vulnerable workers” including non-documented immigrants, temporary workers, workers in trades, and others that have contingent work relations as outsiders to the system. “Even if they know they have the right to get workers’ compensation, they never apply for comp,” he said.

In addition, some gig workers are misclassified employees who should be covered by compensation while others are getting coverage through temporary agencies. But there is a subset who are legitimately classified as independent contractors and do not qualify for coverage.

Studies show that $12 billion in costs in Social Security Disability Insurance (SSDI) are from workers who worked but are no longer getting workers’ compensation benefits and are in disability at least to some extent because of their work-related condition, according to Michaels.

“We think the workers’ comp system covers all the costs, but it only covers the costs that we see and not this really huge world of costs that are really not compensated,” he said.

Michaels said that in addition to lost wages, injured workers face costs that are not covered such as those related to household maintenance. “A worker who’s injured can’t do all sorts of things, and someone else has to do those things. His or her wife or husband has to do those things,” he said.

“What claims or what costs should be encompassed by a comp system and aren’t because of some impediment in the comp system?” asked Wood.

With respect to undocumented workers, Wood said that is a problem with immigration laws and not with the workers’ compensation system.

Who Pays for That?

According to Dr. Emily Spieler, professor at Northeastern University School of Law and former West Virginia workers’ compensation commissioner, approaching the issue only from the perspective of costs to the employer fails to consider the bigger picture, the “social insurance umbrella” of which workers’ comp is supposed to be a part.

“Every economist I know, irrespective of their political proclivities, thinks that workers ultimately pay the costs of the compensation system, and not employers,” she said, arguing that workers never actually catch up on lost wages and that they’re not getting benefits while they are out of work.

The workers’ compensation system’s bad rap in recent reports is partly because of failures elsewhere.  “I think that part of the core underlying problem that we have in the U.S. is that we don’t have a generalized disability system that deals with temporary disability,” the professor said.

According to Spieler, the original intent of workers’ compensation was for the employer to “take the worker as he found him.”

But now states say a worker must show that the workplace is the predominant cause of the disability. This means that an older worker working in a hard job who may have some history of back pain may be excluded from workers’ comp if he or she is off work as a result of an event. “So then the questions become, how do we pay for that and who pays for that?” she said.

In relation to changes made in causation, Spieler maintained that proving negligence of an employer is not only very difficult but also very different from nexus: “If I pick up a 70-pound box and I hurt my back, it might not be negligence, but there is certain nexus. If I have a pre-existing back injury in the states that have that in their provisions, I don’t get comp. If I don’t have a pre-existing injury or condition, I do get comp. But either way, I’m off work and not collecting my wages.”

Thus, she said, when thinking about costs, it’s not enough to think about the employer; it’s important to also think about where the costs are being distributed, whether to Social Security, or the worker, or in communities or to the general health care system. “And are we as a general policy as opposed to our own individual company interests, are we distributing the right way?”

Dr. David Deitz, a former medical director with Liberty Mutual who consults on medical systems design and strategies, seconded concerns over causation.

“[I]t has become a real problem now with the aging workforce, with the people who are working from home, with the recognition that many of the conditions that we thought occur in the course and scope of the workplace actually are diseases of life. I think the causation issue becomes extremely thorny,” Deitz said.

Deitz thinks that the preponderance of evidence standard, the 50 percent standard that most states use, is arbitrary and needs to be revisited.

“[T]here needs to be some work done on this because we all have back pain. We all will get osteoarthritis; I guarantee you will. And if you happen to be the employer who’s ‘holding the bag’ while someone has something happen with osteoarthritis, well, it’s not fair to the employer and it’s not a good public policy decision to not recognize that these are in a sense diseases of life. They are clearly related to the workplace, but we all work.”

Too much energy is spent on issues like causation. “I think we spend a lot of heat and light around some of these causation or proportionate kinds of decisions when the reality is, people need care and we ought to figure out what’s the most efficient way of delivering that causation to them,” he added.

Credible System

Wood agreed that there needs to be a societal solution and that it can’t all be about cost, although he felt compelled to add employer context.

“[U]ltimately, it’s the employer that has to be willing to pay and able to pay what costs that social insurance system is. The workers’ compensation system has to be relevant and has to be seen overall as a credible social insurance system,” he said, adding that preserving the system’s credibility should serve as a brake on simply cutting benefits.

The industry representative thus arrived again at the same place as Spieler:

“So we get to the ultimate question of what should be properly encompassed within the workers’ compensation system and what is partially the responsibility of some other payment system?”

With respect to the longer term costs, Wood said the farther the line goes out from the injury, the harder it is to make a connection between lost wages and the injury because some wage loss might be due to other factors unrelated to work like economic conditions or a reorganization of the business.

He also said there is research showing that the increase in SSDI has to do with the aging workforce, the increase in women participating in the workforce, and more lenient SSDI eligibility and not with any inadequacy of workers’ compensation benefits.

However, Spieler cited West Virginia mine workers she knows who are on long term disability and will eventually end up on Social Security disability. “I think it is a social policy question as to whether that’s appropriate or whether the coal industry should be paying for that,” she said.

The former workers’ compensation state official said there’s a subset of workers who are in the SSDI system but who perhaps should be in the comp system. She cited studies in the American Journal of Industrial Medicine in October 2015 on amputations in emergency rooms. The studies found that 20 to 40 percent of people who had amputations were not filing for workers’ comp.

“Is it the comp system’s fault that people don’t apply for comp?” she asked.

“I think the question is probably incredibly complex and may take us back to some of the questions of trust that were being talked about in terms of disability management and employer relations because worker’s comp is separate from the nature of the relationship between employers and employees.”

According to Spieler, while federal regulation is unlikely and may not even be desirable, policymakers should acknowledge that there are inequities in the current state-based system and they don’t all revolve around the scheduled benefits cited in the ProPublica report.

As WCRI’s own research has shown, “there are huge differences in the level of benefits aside from the scheduled benefits that are being paid in the states,” she said.

What happens is that in the absence of consensus on adequacy of benefits, states vie to equal the lower cost of their neighboring states. “How little is too little?  I feel we lack that consensus. Then does that mean that they continue this downward spiral and where does that end?” she asked.

The downward spiral ends with trial lawyers expanding not only the availability of tort remedies but also the rights of employees in workplaces, she warned.

And thus the grand bargain comes to an end.

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