Workers' Compensation is getting the attention of top management: nine reasons to revisit strategies for 2014

In recent years, many employers took their eyes off Workers' Compensation as rates were low and they needed to focus on more pressing economic issues. Yet, in today's fast moving and volatile business environment, nothing stays the same for very long, including Workers' Compensation. There were changes in the calculation of the Experience Rating Modification, a surge in the use of opioids to treat pain, increases in physician dispensing of drugs and ownership of surgery centers, harder looks at risk profiles by insurance companies, heavier case loads for insurance adjusters, court decisions that broaden the employers' responsibilities, greater OSHA enforcement and regulatory activity, a proliferation of wellness programs, a workforce struggling with obesity and growing older, increasingly complicated medical care systems and so on. Taken together, all of this has led to a more complex environment for employers and higher costs.

A very good indication that Workers' Compensation is gaining the attention of top management is the recent feature in CFO Magazine, "Special Report - Cutting Workers Comp Costs". Rarely has Workers' Compensation gained such coverage in mainstream media.

Here are nine reasons to revisit Workers' Compensation strategies for 2014:

1. Courts are expanding Workers' Comp

   There was a time when the Workers' Comp system was solely focused on making the workplace safer, providing medical treatment and wage replacement for work-related injuries and returning the injured employee to work as soon as medically possible. Today, the picture is much more complicated. The definition of compensable injuries continues to expand, degenerative and comorbid conditions that result from obesity and aging can be deemed compensable, the treatment of chronic pain has become a Workers' Comp nightmare, mental stress claims are gaining traction, illegal immigrants are deemed to be permanently disabled because they legally cannot receive vocational rehabilitation and employers are paying the bills.

   Trends in two areas are particularly worrisome for employers. While court decisions have varied, drug overdosing from prescription medications has become an employer risk as many courts find a causal relationship between a work injury and the death of the injured worker due to overdosing on prescription meds. Although the widespread use of narcotic painkillers to treat injured workers has gotten the attention of states, regulators, and insurers, the treatment of chronic pain remains one of the biggest cost drivers in Workers' Comp. The cost of a workplace injury is nine times higher when a strong narcotic like OxyContin is used than when a narcotic is not used. Employers cannot afford to wait in addressing this issue.

   Similarly, several court rulings have made employers responsible for Workers' Compensation benefits when an injured worker's obesity is a factor in his or her risk profile or medical condition. In some cases, court rulings have required weight-reduction surgery prior to treatment of work-related injuries. Exacerbating this concern is the ruling this summer by the American Medical Association classifying obesity as a disease. Speculation is that this could lead to more claims that include obesity as a co-morbidity and an increase in cases where obesity is claimed as a compensable consequence of injury.

2. Financial incentives driving medical decisions

   While limited by Medicare and Medicaid, physician self-referral thrives in Workers' Compensation in many states. This can include dispensing of prescriptions, ownership of surgery centers, and ownership of labs and diagnostic machinery. When states began placing limits on dispensing of drugs, physicians looked to offset the losses with other sources of income, including conducting urine tests(primarily for opioids), in their offices rather than at accredited labs, or expanding the scope of testing to include illicit drugs, driving volume and costs up.

   Employers need to recognize that the health care system is rife with financial conflict of interests and can only be controlled with their active involvement. The key is not only to have a relationship with a physician or group trained in occupational medicine who follows evidence-based guidelines but also to communicate with them about expectations and objectives and demand transparency about their operation.

3. Next round of Experience Mod changes

   After remaining unchanged for more than 20 years, the split point in most NCCI and independent states rose to $10,000 in 2013 and is scheduled to rise to $13,500 in 2014. The objective of the change is to make the Mod more reflective of actual loss history. While the change in 2014 will not be as dramatic as the impact in 2013, it is a prologue to the future as annual adjustments for claim inflation are expected.

   It should be clear to employers that loss experience is the most important factor in understanding and controlling Workers' Comp costs and knowing and striving for the lowest possible Mod is smart business.

4. A changing workforce on many fronts

   Today, the employee workforce is often concentrated in two areas - the older, experienced worker and the younger, tech savvy inexperienced workers. Furthermore, the workforce is more diverse than it has ever been in history. Employers are moving away from a rigid, rules-based approach to one that fosters leadership, engagement and encouraging workers to recognize and respond to risk as situations change and one that embraces all employees.

   While processes and protocols for safety remain important, what really drives safety is a commitment from employees. Laborious vision statements, lengthy meetings, countless compliance memos are being replaced by an attitude of making it easy to be safe and getting everyone involved.

5. OSHA enforcement and regulatory action

   OSHA enforcement is up in every measurable metric from number of inspections to average penalty per violation. There is a renewed emphasis on whistleblowing. This is expected to continue in 2014. Moreover, two recent regulatory proposals have received the attention of employers.

   A proposed rule announced in early November 2013 would require certain employers to submit their injury and illness survey data electronically to OSHA, where it would eventually be posted online for public viewing. Employers and attorneys initially have objected to the proposal, saying this is another example of OSHA's controversial "regulation by shaming" initiative and could create misleading and damaging impressions of a company's safety practices. OSHA, however, argues that it will help target its compliance assistance and enforcement resources more effectively by identifying workplaces where workers are at greater risk, and enable employers to compare their injury rates with others in the same industry.

   OSHA has also proposed its first significant revision of silica exposure standards for construction workers in more than 40 years. While the majority of large contractors already comply with many of the proposed regulations, the proposal is expected to translate into substantially higher costs for small and midsize construction firms. In response to concerns, OSHA has extended the comment period to January 27, 2014.

6. Medicare secondary payer system continues to hinder Workers' Compensation settlements

   Long response times and higher-than-expected bills from the Centers for Medicare and Medicaid Services (CMS) are making it difficult to resolve claims. Furthermore, reimbursement amounts can often take a large portion of the settlement, reducing the incentive for workers to close their cases. It's estimated that Medicare secondary payer issues affect 8% to 13% of all Workers' Comp claims. And that's just the tip of the iceberg. Set-asides, (insurers place money into an account to pay for future medical expenses that otherwise would be covered by Medicare), are often much higher than expected, and insurers sometimes opt to leave a claim open. Prescription drug costs are prime factors in projecting costs. Even though the review process is voluntary, many fear future repercussions if the set-asides are not approved by CMS.

   Employers need to be diligent about identifying claims that could be subject to Medicare reimbursement, legally protecting themselves from ongoing reimbursements after a claim has settled, and when medical treatment is completed, providing clear documentation from the worker's physician stating that claim-associated medical care is no longer needed.

7. Proliferation of wellness programs

   Focused on the goal of reducing costs and creating a more productive workforce, employers have turned to wellness programs, with mixed results. Those that have adopted generic programs without regard to the workforce's needs or motivations often suffer from low participation and disappointing results. Others have had solid returns for employers with reduced health care costs and improved productivity. Changing long-standing health habits is not easy and it takes constant evaluation, tweaking and review to keep wellness programs on track.

8. Emerging exposures pose challenges for employers

   Workers are constantly exposed to risks of new technologies and higher intensities of chemicals. Mobile workforces and 24/7 access bring new challenges to the management of risk. While it seems like common sense, knowing where, when, how and with what your employees are working has taken on new meaning.

9. Impact of the Affordable Care Act unknown

   With so much controversy surrounding the Affordable Care Act (ACA), the impact on Workers' Compensation has been under the radar screen. Many believe that there will be cost shifting from Workers' Compensation to health insurance and that more affordable and available health insurance will promote a healthier workforce, leading to fewer workplace injuries and faster returns to work for employees. It is, however, possible that administrative choices - such as giving employees cash to buy insurance - can impact total payroll and hence Workers' Comp costs.

   While it is difficult to gauge what the exact impact of the ACA will be on the Workers' Compensation system, it's important to consider it as employers navigate the muddy waters of health care reform.

It's easy to stay the same course, particularly if things are going well. Too often Workers' Comp strategies are set and only revisited when there is a serious incident. Yet, internal and external factors are constantly evolving and impacting the Workers' Compensation arena. Employers in their quest to reduce costs do best when Workers' Comp is viewed as a business strategy.