Storm clouds on horizon
in 2008: calm seas of Workers’ Compensation threatened
Declining Workers’ Compensation injury claims and
the impact of legislative reforms bode well for employees, employers and
insurers as rates have gone down in most states in recent years.
Yet, as always, in long tail coverage such as Workers’ Compensation,
there are challenges that cloud the future. The Workers’ Comp outlook
for 2008 is one of caution and concern. Here is an assessment of what employers
can look forward to in the year ahead and even beyond.
1. Rising costs and utilization of medical treatments.
Analogous to other health care systems, escalation of medical costs in Workers’
Compensation is well documented and expected to continue. While these burgeoning
costs will adversely affect Workers’ Compensation, the issues in Workers’
Compensation are even more complex than medical inflation. The causes of
rising medical costs are multifarious and compounded by alarming increases
in utilization of medical services.
Taking a closer look at the medical expenses that drive the costs of claims,
an NCCI study, “Measuring the Factors Driving Medical Severity: Price,
Utilization and Mix,” concludes that the key driver is not price
but growth in the number of medical treatments and a different mix of treatments.
For all diagnoses combined, the number of treatments increased 45%. In some
instances such as sprain of knee and legs, the increase was as high as 80%.
(Study compared 2001/2002 with 1996/1997).
What’s more, there is a shift to more complex and expensive treatments.
For example, complex surgery and anesthesia increased 60% and complex diagnostic
testing increased 57%, while physical therapy increased 67%.
The seismic shifts in medical innovation and the corresponding increase
in treatment options coupled with consumer demand for the latest and greatest
treatments will continue to propel the spiral of increased utilization in
2008. Unchecked, the combination of these factors mean soaring medical
costs.
2. A sundry of health care standards. While the ability
to direct care is governed by states, none have programs as extensive as
those in California. A cornerstone of the state’s successful sweeping
reform legislation is the mandated use of a Utilization Schedule based on
the American College of Occupational and Environmental Medicine scientific
evidence-based treatment guidelines.
A powerful means for increasing the effectiveness of medical care to injured
workers, these benchmarks enable employers to measure the actual versus
expected duration of absence based on the injury and determine whether or
not treatment matches the prescribed protocols.
Together with capping utilization of high-volume services such as chiropractic
manipulation, establishing designated medical provider networks and dispute
resolution solutions, the application of evidence-based guidelines has been
effective in constraining Workers’ Compensation medical care costs.
In 2003, employers paid an average of $6.47 per $100 for coverage –
the highest in the nation. By the first quarter of this year, the cost had
fallen to $2.93.
While the efforts in California have been closely watched, only a handful
of states have adopted similar extensive reforms. If you’re asking
why, there is no mantra to adopt this system as a national model. In the
United States, Workers’ Compensation is a multiplicity of systems
governed by the states. In a climate of declining rates that fosters lethargy
and with unique political obstacles in each state, it is unlikely that state
policies will ever converge.
The adoption of evidence-based guidelines will be agonizingly slow.
In 2008, many job-related health decisions will continue to be made by health
care professionals without appropriate training and expertise in occupational
injuries.
3. Declining rate cycle to bottom out. The expectation
that rates will remain low belies logic. Historically, the Workers’
Compensation price cycle has proven “what goes down, must go up.”
The price cycle has repeated in a predictable fashion: rising rates precipitate
a public outcry that triggers legislative reform; these reforms create attractive
market conditions for insurance companies that drop their prices to compete;
businesses shop for “the best deal”; employers lose their focus
on injury prevention and cost containment as complacency sets in; claim
costs do not fall in relation to the reduced rates so Experience Mods go
up; returns on the legislative reform erode or flatten; insurance companies’
profits diminish; and rates increase.
All eyes are turned again to California, often a precursor for the nation,
where a key insurance industry group is urging the Insurance Commissioner
to recommend a 4.2% rate hike in 2008 citing the cost of legal work, fraud
investigation and other claims management tasks.
While dramatic rate increases are unlikely, the tide is turning and
the days of double-digit percentage rate reductions may well be over.
4. Unnecessary loss of skilled workers. There is a broad
spectrum of responses that occur when workers are injured on the job. Frequently,
the employer sends injured workers to the emergency room where they may
wait for hours to be seen by those who are not familiar with occupational
medicine. A prescription is issued and an appointment scheduled several
days later with a primary physician.
Let’s say the injured employee is experiencing back pain. The treating
physician requests the insurance adjuster to schedule an MRI. It could be
as long as six to eight weeks before the employee has the MRI and the results
are read. This means that physical therapy is not scheduled until 10 weeks
post-injury.
This prolonged process can easily produce a “disability mentality”
– the employee begins to think that there is something seriously wrong.
When employees are off the job more than 12 weeks, there is only a 50-50
chance that they will return.
While studies show that 90% - 95% of injured employees should be back to
work by the fourth day following the injury, nationally 24% of workplace
injuries result in lost time greater than three days (ManagedComp survey).
In effect, the system creates unnecessary disabilities and there is no evidence
that this will change in the coming year.
5. Injuries to older workers will continue to cost more.
The aging workforce poses a dilemma for many employers, especially in blue-collar
fields. On the one hand there is the need for retention, since fewer young
workers are entering the skilled trades and finding qualified, experienced
employees is a pressing challenge. On the other hand, older workers have
higher cost injuries (albeit, fewer) and take longer to recover than do
younger employees.
By the year 2012, approximately 20% of the workforce will be 55 years or
older.
Now is the time to become attuned to the implications of the maturing workforce
and implement programs that foster retention and prevent injuries. Without
proper planning, this unprecedented growth in the number of aging workers
will lead to more serious injuries and increases in Workers’ Compensation
costs in the years ahead.
6. Drug use – legal and illegal – will continue to plague
the workplace. A recent study by the US Health and Human Services
Department found that one in 12 full-time US workers acknowledged using
illegal drugs in the previous month. While greater vigilance by employers
in the use of drug testing has made inroads, substance abuse remains a daunting
problem, with alcohol topping the list. Add to this the aggressive advertising
by drug manufacturers that has fueled the public’s demand for new
prescriptions and the risk of prescription and illegal drugs leading to
workplace injuries is considerable.
As sadly demonstrated by the recent controversy surrounding the death of
two fire fighters in Boston, this is a thorny issue fraught with resistance.
If there is to be success, it will depend upon a high level of employee
education as well as increased drug testing. This will take time; look for
continued problems in 2008.
7. Wellness programs require continued commitment. There
is little doubt that the lifestyle of the American worker is a threat to
productivity. A Duke University Medical Center analysis found that obese
workers filed twice the number of Workers’ Compensation claims, had
seven times higher medical costs from claims and lost 13 more days of work
a year from work-related injuries or illness than did non-obese workers.
Recognizing the high economic costs of poor health, many employers are implementing
wellness programs ranging from health risk appraisals to personal health
coaches. Aimed at encouraging employees to adopt more healthful lifestyles,
the programs are intended to reduce medical care costs, lower absenteeism
and injuries and boost worker productivity.
To be effective wellness initiatives require the support of top-level management
and continual motivation of employees. Employers are still grappling to
understand what particular interventions, programs and incentives yield
the greatest return on investment. Privacy and legal issues also continue
to be significant concerns.
This noteworthy and beneficial trend will continue in 2008, but the
effort needs to be constant – much like the anti-smoking campaigns
– in order to be effective.
8. The bar will be raised on return-to-work programs. While
early and safe return to work is a recognized “best practice”
in Workers’ Compensation, there are still employers who resist transitional
work assignments, offer demeaning or “make-work” jobs or run
ineffective programs.
Simply getting the employee back to work is not enough. A successful return-to-work
program is intended to facilitate the transition from temporary medical
restrictions to the resumption of full duty in the usual job within a limited
time frame. As such, employers need to understand and enforce medical restrictions,
establish realistic and evidence-based guidelines for the resumption of
duties, monitor progress, integrate human resources with risk management,
and train employees and supervisors on the value of such programs.
Health care providers have a role, too, by being accountable and becoming
an active partner in the return-to-work process. At the same time, case
managers must work to minimize lag time in treatments and communications.
Only those employers who recognize the value of return-to-work in retaining
employees, improving productivity and reducing costs will commit the time
and resources required. Progress will be made in 2008, but changing attitudes
take time and there is much work ahead.
9. There will be limited use of technology as a strategic tool for
cost containment. Sophisticated Internet tools, software and online
access to information are available to help employers quickly respond to
injuries, predict claims that are likely to spiral out of control, monitor
benchmarks, detect fraud, and improve communication and collaboration between
all parties involved in the Workers’ Compensation process.
Insurance agents need to become the early adopters and take the lead in
using the tools and educating employers. This requires a change in attitude
by agents and employers. Agents can no longer “sell” Workers’
Compensation insurance, but must become experts and consultants to deliver
a full range of injury management services. Employers need to recognize
that Workers’ Compensation is not an expense but a controllable business
cost that, when managed properly, will have a measurable and positive return
on investment.
According to Dr. Spencer Johnston, "If you do not change, you can become
extinct. Get out of your comfort zone and adapt to change sooner. Take control,
rather than let things happen to you." The few who take charge will
change the risk management paradigm in 2008.
Clearly, managing Workers’ Compensation costs is not an “on/off”
intervention to be used when injuries occur or rates rise, but a never-ending
process that encompasses all aspects of the workplace. Workers’ Compensation
needs to be top of mind in the year ahead and long after. |