Travelers' Early Severity Predictor: A way to predict who'll become a drug addict in your workplace.

Allen, 25, works in a Trenton, New Jersey, auto body shop alongside a middle-aged man who’s straining to lift bumpers and fenders. Allen’s co-worker came back after a hip replacement because he feared that he would be fired. Allen knows this guy will turn to “street meds” to ease his pain.

Dr. Adam Seidner knows the same thing -- from his sky-high view as global medical director at Travelers Insurance (TRV). Armed with “big data” on 1.5 million injuries and disabilities, Seidner believes he can predict who’s at risk of becoming an addict -- and how best to treat them. That has led Travelers to develop a system to profile not actual painkiller addicts, but potential ones.

If Seidner is right, it could help address a problem that’s now a plague. Some 2 million Americans are hooked on highly potent prescription drugs like fentanyl, while another 500,000 are “in the clutches of heroin.” In recent years, more Americans have died annually from overdoses, 33,000 of them, than from car accidents - a list that includes celebrities such as Prince and Michael Jackson.

So what’s Seidner’s solution? First, get rid of the addiction fiction claiming that people choose to become junkies. “Perhaps 5 percent of addicts do it for the euphoria,” said Seidner, who spent years detoxing prisoners. “Most take opioids to relieve suffering from chronic pain.”

And that’s scary because it puts an estimated 50 million Americans who suffer from chronic pain in the cross-hairs of potential addiction. They come to doctors’ offices complaining of bad backs, repetitive stress, falls, strains and “soft tissue” injuries. Ever since the 1980s, about nine times out of 10, doctors have traditionally prescribed the most effective remedy for pain: drugstore opioids. They range from the mild, like codeine, to the strong, such as OxyContin (oxycodone) and Percocet (a combination of acetaminophen and oxycodone).

Although opioids curb the pain, they don’t cure the patient. And they have a will of their own. Within a month, these drugs invade the patient’s mind, which then tells the body to “feel” pain, whether it’s real or not, and thus creates a dependency. Patients then demand the opioid -- in stronger and stronger doses -- and if they can’t get it legally or through their medical plan, they may steal prescription pads, use drugs like Imodium that mimic some of opioids’ effects and ultimately move on to street sources, where a $10 bag of heroin is both cheaper and stronger than a $200 prescription.

After years of trying to “just say ‘no’” to an epidemic that kills 46 people a day in the U.S., the medical profession, along with federal and state governments, recognized the danger. “I will not willingly watch another 1,600 of our citizens die,” former presidential candidate and New Jersey Governor Chris Christie told his state legislature this year.
 
On Jan. 19, the mayor of Everett, Washington, also asked the city council to authorize a lawsuit against Purdue Pharma, the maker of OxyContin, alleging that it knew the painkiller was being diverted to the illicit market and didn’t do enough to stop it. But stopping the deadly flow of painkillers is a difficult process. As one doctor in Princeton, New Jersey, who asked not to be identified, said: ”What do you do when a patient comes to you in pain?” Physicians still write more than 200 million opioid prescriptions a year.

The latest data from Maryland, Ohio and New England, where the opioid crisis is most intense, shows an increase in fatalities. Drug companies have promoted medications like fentanyl, a synthetic opioid that can be as much as 50 times more potent that heroin. “It’s like pushing on one side of a balloon,” said Travelers’ Seidner. “It just bulges out the other.”

Travelers has a big dog in this fight. It’s the largest workers’ compensation insurer in a $45 billion business that helps companies manage medical benefits for employees injured on the job. It handles a quarter-million of these claims each year. The longer an employee stays off the job and runs up medical bills, the more the insurer loses. The average claim now runs $40,000 over three years. But with caps on temporary disability now declared unconstitutional in some states, claims could last for decades.

That’s where Travelers’ addict-prediction model comes in, because the first step is to identify a potential addict. To do that, Seidner has assembled “statisticians and brainiacs” to predict which injuries will turn into chronic pain cases and push the patient down the “slippery slope” to opioid dependency.

Travelers developed a program called Early Severity Predictor, which looks at four areas:

Pharmaceutical frequency - What drugs are the patients using and how much. Are they also popping pills on the side?

Co-morbidity - Are they suffering from other conditions, like diabetes or osteoporosis? Do they smoke?

Muscular health - Are they in good condition?

Mental health - Are they angry with their employers? Do they fear going back to work and facing the same injury?
 
Other factors - Sex, socioeconomic status, education and the nature of the injury: shoulder, knee or slipped disk.

A typical person with a chronic injury who might become dependent could be a middle-aged white male factory worker with a bad back. Identifying the potential addict is only part of the problem. Getting rid of the chronic pain and the potential addiction is the other. 

Once such a patient is identified, Travelers can begin to harness resources. It starts by talking to the patient’s doctor. In many states, doctors are under no obligation to talk to the insurer, but nearly seven in 10 will. This is probably because the insurer covers treatments like physical therapy, sports medicine, stimulation devices, yoga, stretching and psychology. “We embrace all modalities, but we don’t do traditional psychoanalysis,” said Seidner. “Instead, we use therapy that will change behavior.”

Seidner and his team have analyzed 20,000 cases of opioid addiction since 2015, identified 9,000 at-risk patients and worked with 2,500 of them. Since then, about 1,400 no longer demonstrate any significant use of opioids, and medical expenses have fallen by 50 percent. Much of that reduction has come from reduced use of opioids, which used to constitute 50 percent of all the prescription drugs that workers comp paid for, according to Travelers Vice President Rich Ives. Now it’s only 23 percent. Vice President Loretta Worters of the Insurance Information Institute, which represents the industry, concurred that “Travelers Early Severity Predictor is certainly helping.”

Let’s be clear. Travelers will only help the companies that pay its premiums and the people employed by those companies. But its strategy, including how to predict drug addiction, provides a roadmap for governments, doctors or anyone with a chronic injury who wants to escape the curse of opioid dependency. In some instances, it’s as easy as looking in a mirror. If you’re taking drugs for a bad back, consider stretching. If you hate your job, try to find another one before you’re reinjured. If you’re depressed, seek help. Opioids will only make things worse. And when you take an opioid of any kind, the addiction clock is ticking. If taken longer than a month, you may already be addicted and not even know it.
 
Finally, when you see a doctor for pain, ask whether another treatment beside opioids might work - before he or she pulls out the prescription pad. “Probably 80 percent of the time it’s a bad idea to prescribe opioids,” Seidner said. “We need to address the pain, but how we do it is the important thing.”
 
​For more information, Click Here.
 
Dan Zeiler
708.597.5900 x134
dan@zeiler.com
 
Source: http://www.cbsnews.com/news/a-way-to-predict-wholl-become-a-drug-addict/?ftag=CNM-0010aab7e&linkId=33675340&linkId=34113097

 

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Intoxication and a Denied Work Comp Claim

The Illinois Workers Compensation Reform Bill of 2011 allowed for the denial of benefits when intoxication was the primary cause of an employee injury.  Our office recently had the first case where a claim has been denied.   

An employee of a local landscape contractor stuck his hand under a mower guard.  Needless to say the result wasn’t good for the employees hand.   A supervisor, following claim procedures, went to the sight to investigate and document the incident.  The employee was then driven to their assigned occupational health clinic for treatment.  This landscape contractor includes post-accident drug screening in their loss control program.  The employee was tested and a number of illegal substances were found to be in this employees blood system.  A claim was submitted to the workers compensation carrier and with the encouragement of the employer - the claim was denied.  

We ran the numbers through our workers compensation experience modification calculation tool.  The minimum claim cost including treatment and indemnification benefits is estimated to be $15,000.  The effect on the mod was 14% and a three year additional premium cost to the employer of $12,627.

We can help your business establish a drug free program. Options include:

  • Post-Offer (pre-employment) Testing
  • Probable Suspicion / Reasonable Cause Testing
  • Post-Accident Testing
  • Random Testing

Please reach out to us if we can be of any assistance.

Dan Zeiler

dan@zeiler.com

708.597.5900 x134

 

 

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Illinois DOI Announces 2 Convictions Resulting from its Workers’ Comp Fraud Investigations

Illinois Department of Insurance (DOI) Director Andrew Boron today announced investigations by the Department’s Workers’ Compensation Fraud Unit have resulted in two convictions.  A former Crystal Lake police officer charged with workers’ compensation fraud in McHenry County and a former business owner charged with forgery in Cook County have both been convicted and sentenced.

“As I have said before, we take accusations of fraud very seriously.  These convictions are a direct result of our investigations and should send a clear message that workers’ compensation fraud will not be tolerated in Illinois,” said DOI Director Boron. 

The Crystal Lake felon, a former police officer for Crystal Lake, was sentenced to one year of probation, ordered to pay $9,588.13 in restitution, and required to pay $730 in fines, fees, and court costs.  He pleaded guilty in October to workers’ compensation fraud. He made statements to create the impression the nature and extent of an injury he claimed to have suffered to his wrist while at work was more extensive than it really was.  Video surveillance showed him lifting weights in the police station in the month following the injury while he was assigned to light duty.  Additional video surveillance showed him not only lifting weights, but working as a personal trainer. He filed a case with the Illinois Workers’ Compensation Commission for his wrist injury in October of 2012, but that case was voluntarily dismissed less than a month later, after DOI’s investigator sought to interview him.

The second fellon from Cook County was sentenced to two years of probation.  As part of his probation, he was ordered to complete drug treatment.  He pleaded guilty to forgery in November. He lacked workers’ compensation insurance after his policy was cancelled for non-payment of premium in 2008 then issued false Certificates of Insurance to a general contractor he performed work for as proof of workers’ compensation insurance.  The general contractor, who relied on the Certificates of Insurance provided, was assessed thousands of dollars in additional premium by his own insurance company to cover the uninsured risk. 

Fraud based upon the issuance of false Certificates of Insurance puts employees and companies such as general contractors at risk, yet it is one of the easiest forms of fraud to detect and prevent.  If there is any question as to the authenticity of the documentation being provided regarding workers’ compensation coverage, the certificate holder should contact the insurance company listed on the certificate directly to verify that a policy is in fact in place. 

Dan Zeiler

dan@zeiler.com

708.597.5900 x134

- Provided by WorkersCompensation.com

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Real Life Case: Underreporting Payroll for Workers Comp

Real Life Case: Underreporting Payroll for Workers Comp

Some business owners think they can hide or under-report payroll data as a way to save money on taxes and workers' compensation premiums. There are several different ways they can hide payroll data, but it is still a crime that very few prosecutors will turn down. Although this is done to save money, the price of self defense in criminal court and the repercussions of having a criminal record are both costly. In addition to this, the risk of ending a business career can compromise a person's long-term income. The following is a case where a business lost about $100,000 by trying to dodge workers' comp premium obligations.

The owner of a building company was convicted of workers' compensation insurance premium fraud for not reporting some of his employees to his insurer or the Employment Development Department. The owner's daughter was convicted of misdemeanor insurance fraud. Another member of the owner's family who worked there was convicted of felony insurance fraud.

Experts say fraud is an enterprise that brings in billions of dollars, but it provides artificial inflation costs to insurance companies and consumers. In a collaborative effort by the local district attorney's office and the Department of Insurance, the investigation on the business owner started after an employee was injured. The owner paid his workers in cash in order to avoid paying insurance premiums. However, the investigators found evidence that all three of the convicted parties had worked together to convince workers to take cash payments.

The employee who was injured required surgery, but the business owner tried to dispute the worker's claim. Instead, the owner offered the injured worker a disability application form for state assistance, and he instructed the worker to claim the injury occurred at home. The company was ordered to pay more than $45,000 in premium restitution, about $30,000 in EDD back taxes and more than $35,000 in restitution to the injured worker.

It is not easy to hide payroll information, and employees will be vocal if they are injured. In addition to this, there are other ways to track this type of fraud. If an employee is injured, employers should remember that any under-the-table agreements will likely be exposed. Injured employees must look out for themselves and their families. Many other cases are worse. Employees may accumulate higher bills for hospital stays and rehabilitative services. The cost of paying their bills could be much higher than $100,000, and the cost of business disruptions and legal fees would run into the hundreds of thousands. Recovering from an incident such as this is also difficult, and most business owners have to start over from scratch. In comparison with the cost of such a mess, the cost of workers' compensation insurance premiums is minimal. Every employer should remember that it is not worth the risk.

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Questionable Illinois Workers' Compensation Claims are on the Rise

Questionable IL Work Comp Claims are on the Rise  

Researchers analyzed past workers' compensation claims that were considered questionable by referrals, and the reports were submitted over the span of about six months. Although the total number of workers' compensation claims submitted had dropped, the number of claims considered questionable had risen. Questionable claims are ones that experts at insurance companies refer to the National Insurance Crime Bureau for review. When the reports are submitted for review, they are closely analyzed for indications of fraud. In some cases, one report may have several red flags that put it in the questionable category.

The state with the highest number of questionable workers' compensation claims was California, which had more than 2,250. Illinois followed with almost 700, and New York was close behind with nearly 690. In 2011, there were more than 3.3 million workers' compensation claims in a major database. The number decreased to about 3.2 million within the span of one year, and it decreased again in 2013. There were about 3,475 questionable workers' compensation claims reported to the NICB in 2011, and that number increased to more than 4,450 in 2012. This means that claims increased by more than 25 percent. During the first half of 2013, there were about 2,325 questionable claims submitted.

When it came to further describing questionable workers' compensation claims, there were several reasons experts said they referred them. The main reasons were claimant fraud, prior injuries not related to work and malingering. There were more than 6,100 claimant fraud cases, more than 2,300 non-work-related prior injury cases and more than 1,375 malingering cases. Non-work-related injuries pertain to people who claim injuries during days off or recreational days but do not report the incident until they return to work. When they return, they claim the injury happened while they were on the clock. Malingering occurs when a claimant sustained a legitimate injury but kept pretending to experience symptoms in order to collect benefits much longer than necessary after recovering.

Insurance fraud is a growing issue for both consumers and insurers. Many companies are taking steps to prevent it from happening and are also working on ways to improve identification of signs of fraud. If fraud can be prevented before claims are paid, this helps keep premiums more affordable for consumers. When consumers suspect or know of someone committing insurance fraud, it is important to report it.

 

 

 

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Illinois Bucks Trend in Other States; Looks to Establish Competitive Workers' Comp State Fund

Illinois Bucks Trend in Other States; Looks to Establish Competitive Workers' Comp State Fund

Provided by: Property Casualty 360

Illinois state legislators are running counter to a national trend by proposing creation of a state workers’ compensation insurance fund that would compete with the private system.

The development is generating deep angst amongst Illinois insurers and industry trade groups.

The bill, H.B. 2919, cleared the Illinois State House’s Committee on State Government Administration late Wednesday.

According to Kevin Martin, executive director of the Illinois Insurance Association, the legislation was prompted by worker- and plaintiff- lawyer concerns that reforms to the system enacted in 2011 aimed at reducing the cost of workers’ comp aren’t working fast enough.

He said the bill has strong Democratic support in the House, and noted that Democrats control both the state House and Senate.

The legislature is in session until May 31, Martin said.

Rep. Laura Fine, D, who is sponsoring the legislation, didn’t respond to requests for comment.

The decision is counter to the current trend by the states to allow the private market to drive workers’ compensation systems.

For example, New York is moving to increase premiums charged by its state fund to the level charged by private insurers.

The Texas legislature is considering legislation that would end its last ties with Texas Mutual Insurance Co. TMIC, like the New York state fund, is the state’s largest workers’ compensation insurer.

And, the Oklahoma legislature is considering legislation that would privatize its nonprofit workers’ compensation insurance fund and turn it into a private domestic mutual insurance company.

According to data from the National Council on Compensation Insurance, Inc. cited by Martin, workers’ comp premiums in Illinois have dropped 9.2 percent since the reforms went into effect in September 2001.

That isn’t fast enough for supporters of creating a state-insurance fund, which includes most Democrats in the state legislature, he said.

The reason costs haven’t dropped are the usual -- the long-tail nature of workers’ comp claims plus increases in healthcare costs, Martin said.

Martin and Deirdre Manna, vice president of industry, regulatory and political affairs for the Property Casualty Insurers Association of America, say creating a state fund is not a good move.

“Illinois public policy must encourage private enterprise and free markets,” Manna says. “The best way to address escalating costs is to attack the cost drivers.”

She adds there “is no credible evidence that creating a state fund will lower the cost of coverage, and there are other ways to lower costs that do work.”

She notes that a state’s relative workers’ compensation costs are completely unrelated to the nature of the insurance mechanism, and proponents’ attempts to sell legislators and employers on the merits of a state fund based on these assertions are wrong.

“Moreover, self-insured employers have the same cost drivers in Illinois as private insurers,” Manna says.

Martin says one concern is that the state is already deeply in debt and doesn’t have the wherewithal to properly capitalize and staff a fund that would compete with the private market.

For example, he says that the proposed fund would be administered by the state insurance department. But he notes a decision by the state to encourage long-term state employees to retire in 2008 resulted in the loss of many experienced people at the department.

“It is going to be difficult for the state insurance department to ramp up to administer a new department given that a number of its most experienced people have decided to retire,” Martin says

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An overview of the current status of Workers Compensation in the US

Topic provided by the Insurance Information Institute

Workers compensation insurance covers the cost of medical care and rehabilitation for workers injured on the job. It also compensates them for lost wages and provides death benefits for their dependents if they are killed in work-related accidents, including terrorist attacks. The workers compensation system is the “exclusive remedy” for on-the-job injuries suffered by employees. As part of the social contract embedded in each state’s law, in all states except Texas, where employers may opt out of the state’s workers compensation system, the employee gives up the right to sue the employer for injuries caused by the employer’s negligence and in return receives workers compensation benefits regardless of who or what caused the accident, as long as it happened in the workplace as a result of and in the course of workplace activities. There were 114,000 employers in Texas that did not participate in the workers compensation program, according to Best’s News Service, April 10, 2012, see also Background section of this report.

Workers compensation systems vary from state to state. State statutes and court decisions control many aspects, including the handling of claims, the evaluation of impairment and settlement of disputes, the amount of benefits injured workers receive and the strategies used to control costs. From 2010 to 2011 maximum income benefits for total disability increased an average 3.09 percent. The average maximum weekly benefit in 2011 was $806.62 according to the U.S. Chamber of Commerce 2011 Analysis of Workers Compensation Laws.

Workers compensation costs are one of the many factors that influence businesses to expand or relocate in a state, generating jobs. When premiums rise sharply, legislators often call for reforms. The last round of widespread reform legislation started in the late 1980s. In general, the reforms enabled employers and insurers to better control medical care costs through coordination and oversight of the treatment plan and return-to-work process and to improve workplace safety. Some states are now approaching a crisis once again as new problems arise.

RECENT DEVELOPMENTS

  • National: According to NCCI’s State of the Line analysis, in 2011 workers compensation premiums for private carriers and state funds increased to $36.3 billion in 2011, a 7.4 percent jump from 2010 and the first since 2005. (For private carriers alone, premiums were $32.2 billion, compared with $29.9 billion in 2010.) Because its premiums are directly linked to employment levels and wages, workers compensation insurance is the line most significantly affected by the economic slowdown and nascent recovery. Premiums dropped 27 percent from 2006 to 2010.
  • The combined ratio, the percentage of each premium dollar spent on claims and expenses, was unsustainably high at 115, NCCI says, the same as in 2010, and the highest combined ratio for any of the major lines of commercial insurance for the third straight year. A combined ratio of 100 or higher means that the industry is paying out more in claims than it is collecting in premiums.
  • Faced with the worst results in the past 10 years, according to Fitch Ratings, insurers are raising rates. Industry observers attribute the poor financial results largely to rising medical expenses and recession-related conditions: sluggish premium growth and injured workers’ inability to find work or return to their former workplace, which can increase the duration of claims.
  • Obesity has an impact on the cost of claims, according to a study by the NCCI. The duration of lost income claims was five times greater for the most severely obese workers than for workers who were not obese but filed comparable claims. The data came for insurers operating in 40 states. The study’s findings are similar to those of a 2007 Duke University Medical School report on its own employees.
  • Prescription drug costs now represent about 19 percent of workers compensation medical costs nationwide, according to the NCCI. One cost driver is doctor-dispensed repackaged drugs. The Illinois Workers Compensation Commission has been studying the issue in order to address the significant mark-ups on doctor-dispensed repackaged drugs over pharmacy-dispensed drugs. The commission found that drug repackaging firms often obtain a new National Drug Code number with a much higher unit price. One workers compensation group found that the average repackaged drug costs $115, a 236 percent increase over the average price of $48.65 for the same drugs not repackaged. The commission proposed that drugs dispensed outside of a licensed pharmacy be billed at the average wholesale price plus a dispensing fee of $4.18. The change was adopted by the state’s Joint Committee on Administrative Rules in November 2012. Currently, three states, Massachusetts, New York and Texas, do not allow physicians to dispense repackaged drugs and other states are considering such a move.
  • The Workers Compensation Research Institute (WCRI) recently published a study of the impact of a change in the law in California in 2007. Critics of proposed regulations on doctor-dispensed repackaged drugs feared that injured workers would not receive needed medications if doctors stopped dispensing them when it was less profitable to do so. Data from California show very few doctors stopped prescribing (55 percent before the law passed as compared with 53 percent three years later) so injured workers had similar access to medications but at a lower cost.
  • Another cost driver is the growing long-term use of narcotic painkillers. A new study by WCRI, Longer-Term Use of Opioids, found that nearly one in 12 injured workers who were prescribed opioids were still on the drugs three to six months later, highlighting a problem that contributes to overuse: failure of doctors to implement recommendations for drug testing and psychological evaluation, two steps that might help reduce the abuse of such drugs. A report from the insurance broker Lockton notes that opioids account for about 25 percent of workers compensation prescription costs and 35 percent for claims over three years old. Indirect costs to society include workers’ failure to return to work because they are addicted to the drugs. The Lockton study says there should be an evaluation of the validity of continuing to prescribe opioids when medical reports do not indicate progress in work and life skill functions and a reduction in pain.
  • State activities
  • California: At the end of August on the last day of the 2012 session, legislators passed SB 863, a bill developed by labor groups and some large self-insured employers that have been meeting since last fall to put together a legislative plan. Supporters claim that the measure will produce savings of $880 million, more than enough to offset the $610 million in increased payments to workers receiving permanent disability benefits. However, while praising the reforms, industry observers said it is too early to say whether the savings projected will actually occur. In the past, reform legislation has sometimes produced unintended results such the reduction in benefits for permanently injured workers that came about as a result of the 2004 reforms pushed by former Gov. Arnold Schwarzenegger. The California Workers Compensation Bureau said in October that it expected savings of 4.4 percent on 2013 policies, somewhat less than its earlier estimate of 4.9 percent.
  • At the end of November, State Insurance Commissioner Dave Jones approved a 2013 advisory rate increase of $2.56 per $100 of payroll for policies renewing or starting on or after January1, 20132. The commissioner explained his action by acknowledging the “steady and dramatic” increase in the cost of the state’s workers compensation system. He noted that insurers are currently paying out more in claims than they are collecting in premium and that the state cannot afford to overestimate the potential savings the new law will produce.
  • New York: Data from the Workers Compensation Research Institute (WCRI) shows that the reforms enacted in 2007 are beginning to achieve some of their goals, particularly bringing maximum disability benefit levels for injured workers more in line with national averages. The 2007 law also reduced the time injured workers receive permanent partial benefits, established medical treatment guidelines and required limits on prices for pharmaceutical products. The WCRI notes that the cost of pills covered by the pharmaceutical fee schedule has decreased by 10 to 20 percent.
  • Oklahoma: Business groups and regulators are again pressing lawmakers to consider ways of lowering the cost of workers compensation, which in some cases is as much as five times higher than in neighboring states, according to the state’s Chamber of Commerce. Insurance Commissioner John Doak has said that the high costs are pushing employers to think about relocating. The high costs are attributed by some legislators to the adversarial nature of the system, which provides lawyers with incentives to drive a workers disability rating higher to increase lost income benefits. Oklahoma’s level of attorney involvement is 50 percent higher than the national average.
  • In 2012, a bill that would have allowed employers with more than 50 workers that met certain criteria to opt out of the state’s workers compensation system failed because small businesses feared that the thresholds would exclude them, see also State Funds, below.
  • Insurance industry observers said that under the earlier opt-out plan, employee benefits would have been reduced substantially. Disputed claims would have been subject to mandatory arbitration or mediation and employers would have been able to avoid the Workers Compensation Court and state insurance and workers compensation regulation.
  • Oklahoma is one of a handful of states where the courts run the workers compensation system. Legislation modifying the court system and instituting other cost saving measures was passed in 2010 and 2011 but critics, including those promoting the current opt-out plan, say the system is still too expensive. Among the options being considered for the 2013 legislative session are an opt-out system with essentially no thresholds and an administrative system with a three-member Workers Compensation Commission to replace the current court-based system. The commission would be made up of a doctor, an attorney and an insurance professional with five years of experience in dealing with workers compensation issues. Gov. Fallin has called the system’s high costs an obstacle to job creation.
  • Under the 2012 proposal, employers that opted out would have had to provide an alternative benefits plan that included medical, disability and death benefits for injured workers and that would comply with ERISA, the Employee Retirement Income Security Act of 1974, the federal law that sets minimum standards for most pension, welfare and health plans offered by private industry. The legislation would have made the ERISA-compliant plans the exclusive remedy for opt-out companies, preventing workers from suing their employers in state court. The exclusive remedy is at the heart of the workers compensation social compact, see the introduction to this report. In Texas, the only state to allow employers to opt out of the workers compensation system, nonsubscribers, employers that elect not to participate, are fully liable under the tort system for workplace accidents and can be sued for negligence.
  • Texas: Major reforms were enacted in 2005 that transferred responsibility for workers compensation from a commission to the Texas Insurance Department, improved access to healthcare and advice for injured workers, promoted return-to-work programs, created medical treatment guidelines and raised injured workers’ benefits.
  • The department publishes a biennial report on system improvements. Highlights of the 2012 report indicate that since 2003 to the end of 2011 rates have decreased almost 50 percent; the number of days lost from work due to work-related injuries fell from an average 97 days (median 26 days) in 2004 to 6.0 weeks (median 21 days); and the amount of time needed in 2011 to resolve medical disputes dropped significantly, with fee disputes taking 197 days instead of 335 days as they did in 2005, pre-authorization disputes 20 days instead of 59 and retrospective medical necessity disputes 31 days instead of123. The percentage of employers that participate in the program (i.e., became subscribers, see Background section) rose from 62 percent in 2004 to 67 percent in 2012. Only an estimated 19 percent of Texas employees (about 1.7 million workers) were employed by non-subscribing employers.
  • State Funds, Competitive Funds: Following the successful change over in West Virginia from a state-controlled workers compensation system to a private competitive market, several states, including Arizona, Colorado and Oklahoma, all of which have workers compensation entities with some degree of state oversight that compete with the private market, have been looking into some form of privatization. Some impetus for the sale of these entities is the poor local economy and the resulting budget deficits.
  • Other states, such as Maryland, have been raiding the policyholder surplus of their state workers compensation funds to add to their states’ general funds. In May 2012, to end this practice, Maryland lawmakers agreed to privatize the State Fund, the largest workers compensation insurer in the state, converting it into a private company, Chesapeake Employers’ Insurance Co., effective October 2013.
  • In Arizona, the legislature has agreed to privatize the State Compensation Fund, requiring the transaction to be completed by 2013. The fund had a market share of 31.5 percent in 2009, according to the state’s department of insurance.
  • In Colorado, Pinnacol Assurance, a quasi-mutual company with almost 60 percent of the market, is also exempt from premiums taxes. A proposal to turn it into a mutual insurer that would also be the insurer of last resort was submitted to the governor in November 2011. The governor set up a task force composed of various stakeholders to review the proposal and make recommendations. Negotiations are continuing. An earlier recommendation from a legislative committee failed to gain support.
  • In Oklahoma CompSource, which insures about 35 percent of the market, has a 5 percent advantage over private insurers because it does not pay premium taxes. A legislative task force studying the options voted 5 to 4 in favor of creating a mutual company, but the idea was dropped when opponents said that it would result in higher premiums for small businesses. Most of the businesses in the state are small, with 98 percent having fewer than 100 workers and 75 percent having fewer than 10, according to the State Chamber of Oklahoma.
  • In Washington State, which has a monopolistic state fund, a ballot initiative that would have led to opening the market to private competition was defeated in the November 2010 elections. Voters rejected the initiative, I-1082, by a wide margin. The initiative was spearheaded by the Building Industry Association of Washington and endorsed by the National Federal of Independent Business. It would have created a task force on private competition to draw up legislation and make recommendations.
  • In Ohio, which also has a monopolistic state fund, there has also been interest in allowing some form of competition from private insurers. In November 2009 the Senate voted to create a task force to evaluate the current system, compare it with competitive systems in other states and review the options. At a hearing held in August 2010, the president of the Insurance Information Institute, Robert Hartwig, suggested that the state’s monopolistic system is out of keeping with economic reality. There is no other type of liability insurance in the United States where the state is the sole provider of coverage although states have had ample opportunity to create such a system. Ohio voters rejected a ballot initiative on privatization in 1981. Ohio has the largest monopolistic state fund in the nation. It would require a constitutional amendment to totally privatize Ohio’s system.
  • Meanwhile, in November 2011, the state introduced a new rating plan under which employers who adopt “best practices” aimed at reducing workplace injuries and getting workers back on the job faster can save money. Studies show that injured workers in Ohio take longer to get back to work than in other states, with the percentage who return within a year dropping from 75 percent to less than 69 percent over the past four years.
  • The move to privatize comes at a time when state funds are growing. According to a new Conning Research & Consulting study, Workers Compensation State Funds: Evolution of a Competitive Force, state-backed workers compensation funds operate in 25 states and account for one-quarter ($11.3 billion in premiums) of the workers compensation market. While they generally have higher losses than private insurers (they are often the market of last resort, insuring high risk businesses that cannot find coverage in the private marketplace) these are offset by higher investment income and operating results comparable to private insurers, the study found. State funds also work closely with other government agencies, such as state occupational and health and safety associations, to reduce injuries.
  • The Residual Market: Market share of the residual market pools serviced by NCCI, which had been dropping, increased from 4.6 percent in 2010 to 5 percent in 2011. Premiums grew by 13 percent, reversing a trend of declining residual market premiums that began in 2005, according to NCCI. However, the pools remain small.
  • Workplace Deaths and Injuries: Bureau of Labor Statistics (BLS) preliminary data show that 4,609 workers were killed on the job in 2011, slightly fewer than in 2010 (4,690) but far fewer than in 2008, when there were 5,071 workplace fatalities. The death rate for 2011 per 100,000 workers was 3.5, the same as in 2010 and 2009. Many experts attribute the significant drop over the last few years to the poor economy. Fewer people were working last year in jobs where many of the fatalities typically occur such as construction. Fatal accidents declined to 770, the lowest level since 2003. Fatal injuries for this group declined 48 percent from the high reported in 2006.
  • Workplace injuries requiring days off work have declined significantly each year since 2002 when the BLS first started using current reporting requirements. BLS data show the rate per 10,000 full time employees was 117 in 2011, statistically unchanged from 2010. The median number of days off work was eight, the same as last year.

 

STATES WITH A STATE-RUN WORKERS COMPENSATION FUND
 
Competitive with Private Insurers Exclusive
Arizona* Maine Oklahoma North Dakota
California Maryland Oregon Ohio
Colorado Minnesota Pennsylvania Washington
Hawaii Missouri Rhode Island Wyoming**
Idaho Montana Texas  
Kentucky New Mexico Utah  
Louisiana New York    

*Scheduled to be privatized by 2013.
**Compulsory for extra hazardous operations only. Employers with nonhazardous operations may insure with the state fund or opt to go without coverage.

 

 

WORKERS COMPENSATION LAWS FOR DOMESTIC WORKERS BY STATE (A)
As of September 2012
  Type of Law Threshold for Compulsory Coverage
State Excluded (b) Voluntary (c) Compulsory Time Worked Earnings Other
AL   X        
AK     (d)      
AZ   X        
AR   X        
CA     X 52 hours during 90 days prior to injury or exposure to disease Or $100 during 90 days prior to injury or exposure to disease Excludes a household worker employed by the worker's parent, spouse or child
CO     X 40 hours per week or 5 days per week    
CT     X 26 hours per week    
DE     X   $750 per 3 months  
DC     X 240 hours during quarter    
FL   X        
GA   X        
HI     X   $225 per every quarter during preceding 12 months  
ID   X        
IL     X 40 hours per every week for 13 weeks during year    
IN   X        
IO     X   $1,500 during 12 weeks prior to injury  
KS     X     Employer payroll over $20,000 in prior year for all workers
KY     X     2 employees, 40 hours per week
LA X          
ME   X        
MD     X   $750 per quarter  
MA     X 16 hours per week    
MI     X 35 hours per every week for 13 weeks during preceding 52 weeks    
MN     X   $1,000 in any 3 month period of current or previous year  
MS   X        
MO   X(e)        
MT   X        
NE   X        
NV   X        
NH     X      
NJ     X(f)      
NM   X        
NY     X 40 hours per week, non-farm    
NC   X        
ND   X        
OH     X   $160 per quarter  
OK     X     Employer payroll in preceding year of $10,000 per worker
OR   X        
PA   X        
RI   X        
SC     X     4 employees per employer; payroll more than $3,000 in previous year
SD     X 20 hours per week for more than 6 weeks in 13 weeks    
TN   X        
TX   X(e)        
UT     X 40 hours per week    
VT   X        
VA X          
WA     X     2 employees; 40 hours per week each
WV   X        
WI   X        
WY X          

(a) Domestic workers include household workers such as babysitters, housecleaners, gardeners, etc.; in some states excludes family members.
(b) Domestic workers are specifically excluded from the workers compensation system.
(c) Employers are permitted to provide workers compensation coverage voluntarily.
(d) Except for part-time babysitters and noncommercial cleaning persons.
(e) Elective or optional.
(f) Coverage is voluntary for domestic workers but on an elective basis, i.e., an employer may elect, in writing, prior to an accident, not to be subject to the law. However, this requirement renders the law compulsory in practice. In New Jersey, homeowners insurance policies must contain provisions covering domestic workers.

Source: "Workers Compensation: Exposure, Coverages, Claims,"
ISBN #0-923240-12-8. Standard Publishing Corp., Boston, MA. All rights reserved; PCI.

 

BACKGROUND

The Workers Compensation Social Contract: The industrial expansion that took place in the United States during the 19th century was accompanied by a significant increase in workplace accidents. At that time, the only way injured workers could obtain compensation was to sue their employers for negligence. Proving negligence was a costly, time-consuming effort, and often the court ruled in favor of the employer. But by the early 1900s, a state-by-state pattern of legislative proposals designed to compensate injured workers had begun to emerge.

Wisconsin enacted the first permanent workers compensation insurance law in 1911 (New York had enacted a law a year earlier but it was found unconstitutional), and by 1920 all but eight states had enacted similar laws. By 1949 all states had a workers compensation system that provided compensation to workers hurt on the job, regardless of who was at fault. The costs of medical treatment and wage loss benefits were the responsibility of the employer which were paid through the workers compensation system. As part of the compromise that made the employer liable for work-related injury and disease costs regardless of fault, the employee gave up the right to sue the employer for injuries caused by the employer's negligence.

The scope of workers compensation coverage has broadened considerably since its early beginnings. In 1972, states amended their laws to meet performance standards recommended by the National Commission on State Workmen's Compensation Laws. Many states took action not only to expand benefits but also to make the coverage applicable to classifications of employees not previously covered.

However, compensation levels are not uniform. In some states benefits are still inadequate, while in others, they are overly generous. Some states were slow in adopting the National Commission's guidelines and have still not embraced the entire package of 19 recommendations published in 1972. Many states exempt employers with only a few workers (fewer than five, four or three, depending on the state) from mandatory coverage laws. A major benefits issue still to be resolved in some states is the imbalance between levels of compensation for various degrees of impairment; permanent partial disabilities tend to be overcompensated and permanent total disability undercompensated.

Some coverage is provided by federal programs. For example, the Longshoremen's and Harbor Workers Compensation Act, passed in 1927 and substantially amended in 1984, provides coverage for certain maritime employees and the Federal Employees' Compensation Act protects workers hired by the U.S. government.

Employers can purchase workers compensation coverage from private insurance companies or state-run workers agencies, known as state funds. In 20 states, according to a Conning study, “Workers Compensation State funds, Evolution of a Competitive Force,” state funds compete with private insurers and in four states, the state is the sole provider of workers compensation insurance. (See list at the end of Recent Development section of this report.) Along with residual market pools, many state funds also function as the insurer of last resort for businesses that have difficulty getting coverage in the open market.

The only state in which workers compensation coverage is truly optional is Texas, where about one-third of the state’s employers are so-called nonsubscribers. In the event of a serious accident, those that opt out of the system can be sued by employees for failure to provide a safe workplace. The nonsubscribers tend to be smaller companies, but the percentage of larger companies opting out is growing. Some 25 percent of the state’s workers were employed by nonsubscribers in 2008, compared with 23 percent in 2006.

Some businesses finance their own workplace injury benefits through a system known as self-insurance. Large organizations with many employees can often estimate the cost of routine types of injuries. Self-insurance, along with large deductibles, which are in effect self-insurance, now account for more than one-third of traditional market premium. Put another way, workers compensation accounts for more than 40 percent of the alternative market, see also Captives report. Businesses that self-insure their workers compensation losses must prove that they are financially able to do so. They usually protect their assets by purchasing insurance coverage for catastrophic losses or losses in excess of a specific threshold.

About nine out of 10 people in the nation’s workforce are protected by workers compensation insurance. Laws vary by state for domestic workers, see chart, and at least 15 states do not require employers to provide workers compensation coverage to migrant and seasonal farm workers.

How the System Works: Workers compensation systems are administered by the individual states, generally by commissions or boards whose responsibility it is to ensure compliance with the laws, investigate and decide disputed cases, and collect data. In most states employers are required to keep records of accidents. Accidents must be reported to the workers compensation board and to the company’s insurer within a specified number of days.

Workers compensation covers an injured worker’s medical care and attempts to cover his or her economic loss. This includes loss of earnings and the extra expenses associated with the injury. Injured workers receive all medically necessary and appropriate treatment from the first day of injury or illness and rehabilitation when the disability is severe.

To rein in expenditures and improve cost effectiveness, many states have adopted cost control measures, including treatment guidelines that spell out acceptable treatments and diagnostic tests for specific injuries such as lower back injuries and fee schedules that set maximum payment amounts to doctors for certain types of care.

Most claims are medical only, but lost-time claims, those with both medical and lost income payments, though few, consume most resources. Claims are categorized according to the degree of impairment—partial or total disability—and whether the impairment is permanent or temporary. Cash benefits can include impairment benefits and, when the impairment causes a loss of income, disability or wage loss benefits.

Impairment can be defined in several ways. Payments may be based on a schedule or list of body parts covered and the benefits paid for a loss of that part. For injuries not on the schedule, benefit payments may be calculated according to the degree of impairment or the loss of future or current earnings capacity, often using the American Medical Association’s definitions.

Most states pay benefits for the duration of the injury. But some specify a maximum number of weeks, particularly for temporary disabilities. For workers with a total disability, the benefit amount is some percentage of the worker’s weekly wage (actual or state average). Cash benefits may not be paid until after a waiting period of several days.

Costs to Employers: Costs to employers include premiums, payments made under deductibles and the benefits and administrative costs incurred by employers that self-insure or fund their own benefit program. The percentage of total compensation costs that workers compensation premiums represent fluctuates. In the mid-1950s, private sector employers paid an average 0.5 percent of payroll for workers compensation. By 1970 this figure was 1 percent, escalating steeply in the 1980s and 1990s to a record high in 1994 of 2.99 percent. However, there is a wide variation in costs among states and industries, so that the highest rated (the inherently riskiest) groups could pay several hundred times that of the lowest rated (safest) groups, as a percentage of payroll. Also taken into account is the firm’s own safety record.

Insurance, particularly commercial insurance, is a cyclical industry marked by hard and soft markets. In 2000 as the economy expanded, premiums started rising, ushering in the hard market, when demand outstrips supply. In 2007, with a generally soft market for most types of commercial insurance and a weakening economy, premiums began dropping again. From December 2007 to mid-2009, as the recession caused payroll, the basis for computing workers compensation premiums, to drop significantly (3.6 percent) workers compensation insurers saw premiums contract. In fact, the recent recession had the most serious impact on workers compensation in terms of payroll in 60 years. In the recessions of the 1970s and 1980s, the impact was less severe because of continuous wage inflation. Inflation was not a factor in the 2007-2009 recession.

Claim Costs: As mentioned earlier, there are two components to workers compensation claims costs: payments for lost income, which are usually linked to a state’s average weekly wage, known as indemnity costs, and payments for medical care. Two decades ago, indemnity costs made up the greater part of total losses. In 1986 indemnity costs represented 55 percent of the total. By 1996 indemnity and medical had changed places, with indemnity at only 48 percent of losses. In 2008, as medical care costs continued to rise, indemnity accounted for 42 percent.

Growth in workers compensation medical costs for the most part has been much steeper than in the healthcare industry as a whole. The annual average rate of increase in workers compensation medical care costs was 3.9 percent from 1991 to 1995. Since then the rate of increase has more than doubled and, in most years, was more than twice the rate of increase in the medical Consumer Price Index (CPI). Between 2002 and 2007, the medical cost per lost-time claim -- where the employee was forced to take time off work because of the injury as opposed to just seeking treatment for the injury—increased by 6.7 percent compared with an increase of 4.0 percent in the medical CPI. However, in 2009 workers compensation medical care costs increased by only 2 percent, compared with a rise in the medical care CPI of 3.4 percent.

NCCI Holdings suggests that much of the difference between the cost of a healthcare claim and a workers compensation claim is due to the volume, duration and mix of services used by injured workers and group health claimants.

But while the size of claims (dollar amount) has been climbing due to the increasing cost of medical treatment, the number of claims filed (frequency) has been dropping steadily as insurers and their policyholders focus on safety. The frequency of lost-time claims dropped by 54.9 percent from 1991 to 2008. NCCI also attributes recent declines in the frequency of accidents to the use of robots, which reduce workers' exposure to hazardous activities; power-assisted devices that reduce physical stress, lighter and stronger materials; ergonomic designs that reduce strains; and cordless tools, which reduce the incidence of tripping over cords. Frequency declines, which first showed up among small employers are now evident also in large firms.

Insurance company financial results often report profitability in terms the combined ratio (the percentage of each premium dollar spent on claims and expenses). The combined ratio for workers compensation is reported in two different ways: by calendar year and by accident year. In 2008 the calendar year combined ratio started to deteriorate, moving from 99 in 2007 to 100 in 2008. The accident year combined ratio deteriorated more sharply going from 92 in 2007 to 101 in 2008, according to the NCCI. The accident year combined ratio hit a peak of 140 in 1999.

Calendar year results reflect claim payments and changes in reserves for accidents that happened that year or earlier. Insurance companies have to set aside reserves for accidents that have happened but where claims have not been settled. Workers compensation claims may not be settled for many years, if the accident victim needs increasingly more treatment, for example. Accident year results, in that they include only losses from a specific single year, may present a better picture of the industry's performance at a given point in time.

Reducing Costs: Workers compensation system costs are rarely static. Reforms are implemented and then, over time, one or more element in these multifaceted systems get out of balance. Soon employers and legislators complain that the cost of coverage is hurting the state’s economy by reducing its ability to compete with other states for new job-producing opportunities.

In the 1980s, with a view to increasing competition within the insurance industry in order to bring down rates, legislation was introduced in more than a dozen states to change the method of establishing rates from administered pricing, where rating organizations recommended rates that included expenses and a margin for profit, to open competition. Now insurers base their rate filings on more of their own company's specific data, rather than using industrywide figures in such areas as expenses and profit and contingency allowances. Rating organizations still provide industrywide data on "losses"—the costs associated with work-related accidents, which help small companies that lack access to large amounts of data.

More recently, states have begun to disband Second Injury Funds. Set up mostly after World War II, these funds were designed to protect employers that hire disabled workers from having to bear the full cost of the first disability when an injury that further disabled the worker occurred in their workplace. Many believe that these funds are now unnecessary in that passage of the Americans with Disabilities Act has made the protection they afford to disabled workers redundant. The Act protects injured workers from discrimination by employers. At least 10 states have repealed laws covering Second Injury Funds.

The aim of the workers compensation system is to help workers recover from work-related accidents and illnesses and to return to the workplace. A fast return to work is desirable from the employer and insurer’s viewpoint, lowering claim costs for the insurer but benefiting the worker too.

Research shows that the faster the insurer receives notice of an injury and can initiate medical treatment, the faster the injured worker recuperates and returns to work and the less likely he or she is to seek out an attorney for help in dealing with a claim. Studies also suggest that most people want to return to productive employment as soon as possible. Electronic communication has enhanced procedures to speed up the "first notice of claim" filing process to the workers compensation administrative office.

There are two important aspects to facilitating the return-to-work process. One involves getting the most effective medical care as soon as possible and reducing the emotional stress that may follow an accident. To help get medical treatment to the injured worker faster, some insurers help employers file promptly a "first notice of injury" with the state agency responsible for overseeing the workers compensation system, a step which triggers the claim process.

The other is to encourage employers to improve communications, first about the workers compensation system in advance of accidents—people who know what to expect and who receive medical attention promptly will recuperate faster and are less likely to turn to an attorney for help—and second when injured workers are off work, so that they feel that they are still part of the workplace team and are anxious to return. Insurers have also strengthened communications among all the parties involved in the case so that each knows how treatment is progressing.

Another aspect of the return-to-work process is successful reintegration into the workplace. Insurers help employers assess the injured workers’ needs and capabilities and encourage them to let workers know, in advance of any injury, that they will try to modify work activities to accommodate those who are permanently disabled.

Long absences from work can have a lasting negative impact on workers’ future employment opportunities and thus on their economic well-being. A study of injured workers in Wisconsin by the Workers Compensation Research Institute found that the duration of time off work and periods of subsequent unemployment are lower for injured workers who return to their pre-injury employer than for those who change employers.

Another factor pushing up costs in some states is the amount of attorney involvement. Workers compensation programs were originally intended to be "no-fault" systems and therefore litigation-free. Attorney fees are either set by law or subject to approval of the courts or regulator. Computations may be based on an hourly rate, a percentage of the total award, a specific percentage according to the level of the hearing on the case, or a sliding scale with percentages decreasing with the size of the award. Many states have caps on attorney fees.

Although attorney involvement boosts claim costs by 12 to 15 percent, because claimants must pay attorneys' fees there is generally no net gain in the actual benefits received. Overall, attorneys are involved in 5 to 10 percent of all workers compensation claims in most states—but in as much as 20 percent in systems where the number of disputes is high and in roughly a third of claims where the worker was injured seriously.

The involvement of an attorney does not necessarily indicate formal litigation proceedings. Sometimes, injured workers turn to attorneys to help them negotiate what they believe is a confusing and complex system. Increasingly, states are trying to make the system easier to understand and to use.

The workers compensation system plays a major role in improving workplace safety. An employer's workers compensation premium reflects the relative hazards to which workers are exposed and the employer's claim record. About one-half of states allow what is known as "schedule rating," a discount or rate credit for superior workplace safety programs.

In addition, a majority of states now provide for optional medical deductibles in workers compensation insurance policies as a cost-saving measure and, in some states, allowable deductible amounts were raised. (Deductibles reduce premiums because they lower an insurer's administrative expenses, which, for small claims, make up a disproportionately large portion of the cost of settlement.) Deductibles also encourage greater safety-consciousness on the part of the employer who must pay the deductible amount.

In some states, insurers must provide accident prevention services to employers. In others, employers are required by law to set up safety committees and other programs to deal with unsafe conditions in the workplace and assign specific responsibility for creating, monitoring or overseeing workplace safety to a governmental agency.

Some businesses are taking a more radical approach to bringing costs under control through coordination of workers compensation, healthcare and disability benefit plans. The integration of workers compensation and other employee benefit programs is a broad concept that ranges from a simple marketing approach that promises savings from using the same insurer for both coverages to programs that offer a managed care approach to the management of all types of disability, regardless of whether they are work-related.

Besides limiting overlapping programs and streamlining administration, proponents say such a change addresses the increasing difficulty of distinguishing between work- and nonwork-related injuries and illnesses, such as injuries due to repetitive motion and stress claims.

It also improves productivity since nonwork-related disabilities are managed with the same focus of getting the employees back to work as work-related cases, and at the same time addresses the potential for reporting injuries that occur outside the workplace as work-related to reduce the employee's out-of-pocket costs. Workers compensation pays for all reasonable medical treatment without deductibles and co-payments, as opposed to healthcare, where the policyholder incurs some out-of-pocket costs.

Residual Markets: Residual markets, traditionally the market of last resort, are administered by the NCCI in 29 jurisdictions. In some states, particularly where rates in the voluntary market are inadequate, the residual market provides coverage for a large portion of policyholders. In 1993 they represented about 26.5 percent of the total workers compensation market (excluding employers who are self-insured). Since that time, the NCCI has taken steps to reduce the size of the residual market by creating financial disincentives to obtain coverage from it.

Terrorism Coverage: Since the terrorist attacks of September 11, 2001, workers compensation insurers have been taking a closer look at their exposures to catastrophes, both natural and man-made. According to a report by Risk Management Solutions, if the earthquake that shook San Francisco in 1906 were to happen today, it could cause as many as 78,000 injuries, 5,000 deaths and over $7 billion in workers compensation losses.

Workers compensation claims for terrorism could cost an insurer anywhere from $300,000 to $1 million per employee, depending on the state. As a result, firms with a concentration of employees in a single building in major metropolitan areas, such as New York, or near a “trophy building” are now considered high risk, a classification that used to apply only to people in dangerous jobs such as roofing. Faced with the possibility of a huge death toll costing millions of dollars and the threat of insolvency as a result, all but the largest insurers are limiting coverage. This is forcing some employers to raise their deductibles, in effect self-insuring part of the risk, and to deal with several insurers to reduce the potential maximum loss for each.

KEY SOURCES OF ADDITIONAL INFORMATION

Issues Report, a yearly overview of the workers compensation system, National Council on Compensation Insurance.

"Property/Casualty Insurance Facts," Insurance Information Institute, annual publication.

"Analysis of Workers' Compensation Laws," U.S. Chamber of Commerce, annual publication.

Publications from the Workers Compensation Research Institute, Cambridge, MA. http://www.wcrinet.org

© Insurance Information Institute, Inc. - ALL RIGHTS RESERVED

 

 

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Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

Illinois Workers Compensation Insurance and the Work Comp Contractor Credit

For Illinois Contractors, one of the most important reasons for managing your Experience Modification Factor is the Illinois Contractor Classification Premium Adjustment Program (CCPAP).  In order to qualify for this credit your Work Comp Mod must be 1.00 or less.  AND, this credit can be as high as 40% which can be the difference in your bottom line for securing new business.

It's important to understand that controlling your long term costs take more than just getting an Illinois Workers Compensation Insurance quote at your policies renewal every year.  If you're struggling with your mod and would like to learn more on how to control it - give me a call.   Contact Info Link 

To learn more about CCPAP, including an overview of the program and how to complete an application, view the webinar available at NCCI.com via this link.


CCPAP Webinar

 

 

 

 

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Illinois Workers Compensation Experience Rating Formula To Change

 Illinois Workers Compensation Experience Rating Formula To Change

The National Council on Compensation Insurance (NCCI) has announced changes in the formula that is used to calculate experience modifiers for employers in most states and Illinois is one of them.  Currently claims under $5,000 are weighted heavier then claims over $5,000…  in the work comp world this $5,000 mark is called the “split point”.

 In this change the split point will be incrementally increased from the current $5,000 to $10,000 in 2013 and $13,500 in 2014. Thereafter, the split point will be tied to an inflationary index that will start at $15,000.  NCCI cites medical inflation as the reason for the changes, and a need to make premiums more reflective of an employer's loss experience.  For example, in the first year of these changes, contractors with no losses greater than $5,000 should see a drop in their experience modification rating (EMR) factor, while those with a relatively large number of losses approaching or exceeding $10,000 will see an increase in their Experience Modification Factor.  There is no cap on how much an employer's EMR can increase in a given policy year.

These changes will impact all industries but perhaps the construction industry more than most due to minimum EMR requirements imposed on contractors by many project owners just to qualify to bid on a project.  Furthermore, it could affect eligibility for the contractors credit premium adjustment program (CCPAP), which provides discounts to contractors who pay higher than the state average hourly wage for employees in certain construction classifications. In Illinois contractors must have an EMR of 1.0 or lower to be eligible for the CCPAP discount.

Unfortunately, because the experience rating period covers prior years' losses, contractors will not have the opportunity to implement strategies that could reduce the impact of the changes before they become effective. However, contractors do need to prepare for the changes by calculating an estimate of their new EMR and account for the difference in premium in their 2013 budget.  If you feel that these changes may adversely affect your work comp mod we can work up an estimate of the new mod to see the full impact.

 

For more detail on the subject the NCCI has produced a few videos on the subject:

Mod Change Introduction – 8 minutes

 

 

 

 

 

Detailed review of Experience Mod Changes – 24 minutes

 

 

 

 

 

Feel free to contact me with any questions.

Dan Zeiler

708.293.5500

dan@zeiler.com

 

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Illinois Workers Compensation Quote

Illinois Workers Compensation quotes...   we have very competitive work comp rates but it's important that we do more in order to control your long term costs:

  • We make sure you are getting the best workers compensation mod rate possible.
  • We make sure your open reserves don’t adversely affect your mod.
  • We will help prepare a workers compensation premium audit before the auditors arrives.
  • We help establish a working relationship with occupation health clinics.
  • We help prepare job descriptions to avoid bad hires.

Let me know if we can help you with your workers compensation program.


Dan Zeiler
dan@zeiler.com
708.293.5500
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Illinois Workers Compensation: General Contractors and Independent Contractors

Illinois Workers Compensation - Why Every Contractor Should Require Workers' Comp Insurance.

Good risk management plans allow workers' compensation coverage for any hired subcontractors. Since subcontractors are not able to hide behind statutes for contracts, workers' compensation coverage may be required whether there are statutory provisions or not.

For those who are in contractor and subcontractor relationships, over 40 states have statutory regulations regarding workers' compensation benefits. Employees of subcontractors must also be offered workers' compensation benefits if they are injured. The benefits are paid by the immediate employer or the company hiring the immediate employer for the job. As a rule, general contractors face the responsibility of offering workers' compensation to employees of uninsured subcontractors. This is true regardless of the number of employees the subcontractor has. Premiums are also assigned to the general contractor.

General Contractors and Independent Contractors

It is important to avoid confusing the subcontractor-general contractor relationship with an owner-independent contractor relationship. A general contractor is the entity the owner contracts with to complete various projects. A portion or all of the tasks are then assigned to subcontractors. In order for a general contractor's relationship to function, there must be three separate parties. These parties include the owner, an independent contractor and a subcontractor. If any portion of a job is subcontracted, a general contractor's status changes to independent contractor.

An independent contractor is a party contracting directly with an owner or principal to complete a job. In most cases, independent contractors perform jobs that the principal or owner does not normally do. The entire job is completed by the independent contractor and employees. Keep in mind that they are not considered employees of the principal or owner.

As a rule, principals are not usually financially responsible for an independent contractor's injured employees. They are also not responsible for the injuries of employees of subcontractors hired by the independent contractor. General contractors are financially responsible for an uninsured subcontractor's injured employees.

Principals & General Contractors

If the subcontractor and general contractor both lack workers' compensation coverage, the principal may be sued for out-of-pocket expenses incurred by an injured worker. Since the principal does not qualify as a general contractor or employer, financial responsibility is not usually an issue. While employer status is nonexistent, there are other theories of liability that may constitute the need to pay compensation. For example, failing to provide a safe workplace could result in the principal paying an injured non-employee individual. In such a case, a workers' compensation policy or a general liability policy usually provides adequate defense.

It is important for general contractors and principals to require any contracting entities to provide workers' compensation coverage. When an independent contractor or subcontractor purchases this coverage, the act shows that the party does not have any misconceptions about an employer-employee relationship. Contracts between principals and general contractors should be specific in placing responsibilities. In the contract, a general contractor should agree that failing to require this insurance could result in personal statutory responsibility for the subcontractor's injured employees. The general contractor should also agree to hold the principal harmless in an injury case.

Establishing Relationships With Subcontractors

While relationships between contractors and subcontractors are most commonly found in the construction business, they are also found in other industries. For example, cities hire special consultants to analyze traffic patterns. The consultant then hires engineers to perform various studies. They may also perform maintenance on traffic lights, or the work may be contracted out. There are plenty of other examples. However, all contractors and subcontractors are subject to the laws regarding workers' compensation. To avoid facing financial responsibility for injured workers, it is important for general contractors to require all lower tiers of workers to carry their own workers' compensation insurance. 

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Illinois Workers Compensation Modification Factor - Is it correct?

Having a handle on the method of computing your experience modification factor for your workers compensation is a must. Because of the many factors and hands involved in the process the potential of error  is very high.

 

  • As you know, your work comp premium is based on your payroll and the payroll used to compute your mod is derived from your payroll audits. Have you checked that the correct payroll is being used on the workers compensation mod worksheet? Are you confident that the payroll audit was correct? 
  • Experience mods are also developed from your loss history. Do you know when and where the claim data is pulled in order to compute your mod? 
  • When claim data is provided for the computation, any open reserves are used for the claim totals. Do you know that a claim adjuster can handle hundreds of workers comp cases? Have your open reserves been reviewed prior to claim data being sent to formulate your mod?

 

Mod Errors

 

We work with many businesses in the Chicago Illinois market. Our  processes ensure that your insurance premiums are at the minimum. Feel free to contact me with any questions.

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Illinois Workers Compensation Rates

In an article posted by Best’s Review in their November issue…   they’re reporting concerns with the claim vs. premium experience in workers compensation.    In summary:

 

  • Calendar-year combined ratio increased 7 points to 118.1% in the last 10 years.
  • Premiums have declined 30% since 2005.
  • Negative ratings for insurance companies have outpaced positive ratings.

What does this mean for the average business owner? Premium increases in workers compensation rates!!!   It’s time to setup procedures to help control your costs.

Process

 

Our agency helps employers in the Chicago Illinois area to control and monitor Work Comp Premiums. Give me a call if I can be of any assistance for your business.

Dan Zeiler
708.293.5500
dan@zeiler.com

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Illinois Pay as You Go Work Comp

Pay as You Go Workers Compensation

 

We are excited to announce a new Pay As You Go workers compensation program. The idea being that you pay your insurance premiums based on the wages in any given pay period. 

 

·         Improved cash flow

·         Eliminates large down payments

·         Minimizes audit adjustments

·         No late fee charges

 

Who are good candidate for this program?

 

·         Businesses with fluctuating payroll (Contractors!)

·         Businesses with past audit issues

·         Businesses with seasonal exposures

·         Businesses with a peak season

·         Any business that wants to improve cash flow

 

 Pay as You Go Workflow

 

Not only do we manage your workers compensation program,   we offer competitive pricing and now an online pay as you go program. Contact me with any questions or interest.


Dan Zeiler
708.293.5500
dan@zeiler.com
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Illinois Workers Compensation - Do you know your "Validation Date"

One of the many tasks we perform for our customers is to review open claims. Open claims usually have reserves assigned to them which are anticipated future payouts.  Unfortunately, many reserves can be excessive or just ignored due to the work load of the claim adjuster.  This will effect your Workers Compensation Premium.

 

The magic date to be concerned with is called your “validation date”. This is the date that your claims experience is reported to the National Council on Compensation Insurance (NCCI). Should any “reserves” be mismanaged… your experience modification factor will suffer adversely. The “validation date” is 6 months prior to your workers compensation anniversary date.

 

Make sure your reserves are being managed in order to keep your workers compensation premiums low. 

 

Rather than just quote your workers compensation insurance once a year, we have a process to continually manage your long term workers comp costs and premiums. We work with many companies in the Illinois IL and Chicago area
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Hiring to Reduce Work Comp Risk

We welcome the news that in February employers hired workers at the fastest pace in nine months. The jobless rate is at a nearly 2 year low of 8.9% and employment rose across almost all sectors including factory, construction and service jobs. This is a sign that the economic recovery is finally on its way. 

Finding new employees will be the trend for many employers. We want encourage them to focus on finding the right people for their open positions and to avoid the hiring mistakes that can lead to injuries, claims and increased workers compensation costs. The process that we would recommend is:

·         Resume/applicant screening

·         Interview

·         Background check

·         Conditional Offer of Employment

·         Post-offer pre-employment exam

When a candidate successfully completes the initial hiring process (screening, interview, background check) and is deemed to be a good fit for the position, the job offer is made. The offer should be made in the form of a Conditional Offer of Employment. Employment is conditioned upon the candidate being physically able to perform substantially all of the essential job duties of the position with reasonable accommodations for any mental or physical disability. The use of a Conditional Offer of Employment can help employers hire the best person for the job instead of hiring the next workers compensation claim!

Post-offer pre-employment exams allow medical professionals to screen a hire before they start the job and verify that they are able to perform the physical demands of the job for which they are hired. The timing of the exam and the manner in which it is performed is critical. 

An effective hiring process will include a relationship with an occupational clinic or other medical resource that can efficiently schedule and complete the exam so that there is minimal delay. The employee will have been supplied a medical questionnaire to complete before the exam so that the medical personnel will know any pertinent history. This is where prior injuries can be flushed out. 

The medical examiner will need a detailed job description in order to know the job requirements. (See blog on job descriptions.)  The exam should be tailored to the job for which the employee is hired.   The exam may also include an initial drug screen if the employer has a drug policy in place. Once the exam is complete, the medical professional will advise the employer as to the employee’s ability to perform the job and any accommodations that the employee may need. 

Following a clear and consistent hiring process that includes a post-offer pre-employment exam will help to reduce work comp claim potential and decrease work comp premiums in the long run. Follow the link below for guidance from the EEOC for employers on what questions can be asked and how exams can be performed.

http://www.eeoc.gov/policy/docs/guidance-inquiries.html

Here’s to a healthier economy, a healthier workforce and contolling work comp premiums!

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Illinois Workers Compensation Premium Audit

There's many employers who's workers compensation policy period ends 12/31.  So basically...  it's PREMIUM AUDIT SEASON!

BUILD AN OVERCHARGE-PROOF WORKERS COMPENSATION PREMIUM AUDIT PACKAGE

 

  • Utilize a spreadsheet
  • From your Illinois Unemployment Quarterly Reports – total each employee’s earnings for the year.
  • Slide each employee into a job duties column (make sure you’re specific as to the duties which correspond to the appropriate work comp classification).
  • Adjust for Excluded Payroll (overtime, tips, certain allowances, contributions to benefit plans, etc.)
  • Have your Certificates of Insurance ready for any subcontractors
  • Cap owners pay to the appropriate number
There's a little more to the process but you get the idea...  

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