Employer responsibility for the expense of accidents and in some cases occupational illnesses, varies from state to state. Em-ployers must provide reasonable information, rules, supervision, training and safety. The word reasonable depends on interpretation, differing perceptions may lead to arguments and lawsuits.
Insurance is available to cover workers’ compensation, and is often mandatory. A summary of workers’ compensation in southeast states follows.
Major workers’ compensation reform enacted in 2003, SB 50A was written to reduce costs to businesses and increase workers’ benefits. Some major workers’ compensation reforms enacted in Florida involve attorney fees, construction exemptions and independent medical examinations.
There has been a lot of regulatory activity to develop rules to implement the law. The Property Casualty Insurers Association of America (PCI) worked with the Florida Office of Insurance Regulation and the Florida Division of Workers’ Compensation during the rule-making process. An example can be seen in positive changes recently made to Electronic Data Interchange rules.
CHOICE Medical Manage-ment Services LLC listed key workers’ compensation concerns in Florida as: Utilization of the cost driver, Medicare set-aside allocation, presumption law, pharmacy costs, and Medicare crises and effect on workers’ compensation.
“Workers’ compensation claims are slowing, but the severity and cost of claims is rising,” explained Tom Barrett, president and CEO of Choice Medical Management Services LLC. “This is a national issue, but notable trends in Florida require attention.
“Despite historically having among the lowest unit costs in the nation (i.e. lowest fee schedule), Florida’s medical costs are among the highest,” he said. “This shows that utilization–not unit cost–is the main cost driver. Experience and studies prove that lowering or discounting physicians’ fees do not lower the medical costs of claims, yet the industry continues to adopt ‘any willing provider’ and ‘deep discount’ network models. These models simply do not work. Discounting ultimately ends up increasing utilization. In Florida, we need to focus on what we can do to manage the issue of over utilization.”
Joseph Paduda of Health Strategy Services commented: “Exp-erienced physicians who understand the workers’ compensation system have an interest in getting an injured employee back to work and have the greatest ability to control the cost of a claim.”
“We feel the workers’ compensation line is problematic and the industry never seems to get it quite right,” explained Joseph Grauwiler, vice president, Commercial Lines, The Main Street America Group, parent company of National Grange Mutual Insurance and Old Dominion Insurance Company.
“From our vantage point, workers’ compensation rate increases are clearly abating,” Grauwiler said. “However, the industry’s combined ratio for 2004 is projected to be around 106 percent, with an ROE of less than 6 percent. For 2005 and 2006, projections are worse, with the combined ratio climbing above 111 percent and ROE falling below 5 percent. Frequency is down but severity is up.
Grauwiler said increasing medical costs seem to be driving results for Main Street America and most other regional carriers. He said this is not the time to start rate-cutting as it will only exacerbate the condition.
“The thing that bothers me the most about workers’ compensation in Florida is, Who is covered?” asked Ronald N. Silverman, with the Silverman Insurance Agency in Deltona, Fla. “In construction industries, in certain cases, exemptions are legal and appropriate. I see an endless chain of contractors exempting themselves and hiring subcontractors who are also exempting themselves. It is a house of cards.”
Silverman suggested it would probably bother him less if these small businesses had health insurance, disability income insurance and life insurance.
“Experience tells me the majority of small contractors do not have any basic insurances as a back up,” he said. “I wonder how many agents really press that landscaper, janitor, carpenter or drywaller to buy proper insurance? We need to ask and keep asking.
“I understand often it is a matter of money,” Silverman said. “But I also see it as a matter of proper priorities. A landscaper or carpenter will often pull into my parking lot with an expensive truck, trailer and equipment that is absolutely the best. I understand these are the tools of the trade. Quite often, they are most interested in making sure the lawnmower is covered for theft–if you mention health insurance, the conversation dies.”
Jean Feldman, CHOICE senior vice president of Care Management Operations said many of the problems in Florida are due to the aging workforce. “Due to this, we feel the impact of MSAs before other states,” she said. “We had better learn how to deal with it effectively, because our 65+ demographic is forecast to grow 66 percent by 2020.”
Rep. Mike Coan and others have introduced HB 200, which would amend the law passed in 2004 to abolish the Subsequent Injury Trust Fund. Under old provisions the fund would receive new claims until 2008. HB 200 will move that deadline to April 15, 2005. Note: South Carolina is considering legislation to abolish its second injury fund. Since the 1990s, 16 states have repealed their second injury funds.
The biggest issue is the regulation of self-insurance groups. Kentucky is unusual because it allows employers who are not in the same or similar types of businesses to form self-insurance groups. The largest group in the state announced a major deficit last fall and filed a plan for large assessments against members. The group has since gone out of business. There is now a bill in the legislature to strengthen regulation.
PCI does not believe the bill goes far enough to protect employers and employees from future insolvencies of such groups and advocates limiting new groups to homogeneous ones, and strengthening financial requirements and financial oversight.
Experience shows North Carolina is deteriorating, largely due to adverse court decisions. It is likely that the impact of some of the cases has not been fully felt even though North Carolina’s average cost per case for indemnity benefits is significantly above the national average. In addition, due to rate regulation, the impact for insured employers has been masked. PCI is working with employers on reform language to address key cost drivers.
The key cost drivers identified thus far are: The inability to terminate temporary total disability, these cases often turn into lifetime cases; hearing delays create additional costs as insurers must pay benefits until the hearing, sometimes for an additional year or more, assuming the employer/insurer is allowed to terminate benefits then; and employer choice of physician has been weakened by court decisions in which payment of medical benefits was ordered after the employee unilaterally changed physicians.
According to Tim Templeton, a vice president of Senn-Dunn in Greensboro, N.C. the state has a large number of monoline workers’ compensation carriers, Zenith, Accident Fund and Key Risk; as well as national, Hartford, Travelers and Chubb; and regional players, Amerisure, Selective and Cincinnati.
“We have been an attractive marketplace compared to other states,” Templeton said. “Many carriers are cautiously optimistic about their results here. During the hard market, we found the underwriting was deliberate and credit was used sparingly. There has been some loosening and the application of additional credit for good accounts in the past few months. I would still not consider it “soft.”
Templeton said he has had moderate loss cost rate increases over the years. Several carriers, like AIG, have on-line underwriting programs that are efficient and quick.
“These systems have worked well and have substantially reduced turn around time for quotes and policy issuance,” he said. “There were several new carriers active in North Carolina in 2004 which helped soften the marketplace (Synergy). Several self-insured funds operate successfully in the state, however, they are not nearly as widespread as they were 10 years ago. For accounts with reasonable loss experience and a sound safety program, there is plenty of coverage availability. For tougher accounts that have not addressed their safety needs, the choices are fewer.”
Two workers’ compensation bills are receiving legislators’ attention: HB 3284, closes down the Second Injury Fund, and HB 3205, an employer workers’ compensation reform bill.
HB 3284 is supported by a coalition of employers and insurers concerned that the second injury fund doesn’t encourage the hiring of those with disabilities; results in a high assessment, approaching the equivalent of 20 percent of premium; and as a pay-as-you-go-fund, has unfunded liabilities that have more than doubled in recent years.
HB 3205 proposes eliminating the increasingly liberal Workers’ Compensation Commission, moving its functions into the Insurance Department and the Administr-ative Law Judge Division; it limits disability awards; adds forfeiture provisions for drug and alcohol abuse and the employee’s willful misconduct; and overturns adverse court decisions.
PCI believes that HB 3205 is a good starting point for discussion, additional issues need to be addressed including significant rises in medical costs, the high frequency of lost-time claims involving permanent partial disability and the lengthening time claims remain open.
Implementation of 2004 reform legislation is a major activity, a major issue has been implementing a fee schedule. The Workers’ Compensation Division has published a controversial draft fee schedule, based on Medicare, with different conversion factors.
PCI supports the basic structure of the draft, but is concerned that some fee levels are above what most insurers are now paying. Others appear to represent moderate savings.
Gov. Joe Machin signed important legislation (SB 1004/HB 103) Feb. 16 that transitions responsibility for administering claims and benefits from the state’s Workers’ Compensation Commission to a newly created private corporate mutual insurance company at the end of 2005. After July 1, 2008, workers’ compensation will become an open market for competition with private insurance companies. Control over regulation, benefit levels, and adjudication remains intact through legislative and judicial review. The state fund has experienced serious deficit problems for several years and this legislation provides for the deficit to be addressed while transitioning the state from a monopolistic state fund to the private market. PCI supported this legislation.