Dennis Mealy, chief actuary for NCCI, has issued his state of the line report on workers compensation. There's a lot of good news for insurers, along with a few little red flags that might well morph into big banners of bad news. Mealy's presentation will soon be available as a webinar at the NCCI site, but for the moment, let's glean the essence from his Powerpoint presentation.

There's a lot of positive news (with apologies to those who are not up to speed in insurance jargon). Premium is up by $3.3B, about 9 percent in all. The all-important combined ratio has dropped from 115 to 109 (projected). Given suppressed interest rates, 109 is still high, but it puts profitability within reach. The calendar year loss ratio has dropped from the unacceptable - 70.8 percent - to 66 percent. Pre-tax operational gains are plus 5 percent.

There is (mostly) good news in the loss area: frequency of lost-time claims is down an average of five per cent across all sectors. Indemnity claim costs are up just slightly, as are severity costs. Even in assigned risk pools - insurers of last resort - results have improved, with combined ratios down to 112 percent, compared to 117 in the two prior years.

At the same time - and directly related to the improving results - discounting of premiums has diminished from -7.6 percent to a projected level of -4.5 percent. [Perhaps even the sceptical rate setters in Massachusetts will begin to see the relationship between (slightly) higher rates and a healthy market. If they continue their intransigence on rate increases, the Massachusetts miracle will soon collapse in a heap.]

Who Pays?
In all success stories - however modest - there are winners and losers. In workers comp, the winners are employers with low losses; the losers tend to be those with relatively high losses. NCCI has upped the ante by changing the way experience mods are calculated.

Beginning in January and rolling throughout this year, NCCI is implementing a new mod calculation, raising the split point of primary losses from $5,000 to $10,000. (See Tom Lynch's detailed explanation beginning here.) For many experience rated risks, the change has been positive. Despite paying slightly higher rates in many states, the cost of insurance has remained stable or even dropped. Here is NCCI's summary of the new rating plan impact:

- 12 percent of risks see premiums decreasing by 5 to 15 percent
- 76 percent see plus or minus changes within 5 percent
- 11.3 percent see increases in the 5 to 15 percent range
- less than 1 percent see increases above 15 percent (these are the folks who have been calling...)

The Big (Cloudy?) Picture
Mealy's presentation offers a good news/bad news overview of workers comp. On the plus side, we have seen a slight increase in premiums, a reduction in frequency, stable severity and a good capital position for the industry in general.

On the negative side, the slow pace of economic recovery is troubling, as is the structural unemployment that threatens the livelihoods of aging, middle class workers. Underwriting is confronted with unprecedented instability in predicting risk: today's low loss company might well be tomorrow's catastrophe. Low interest rates impede profitability. Alternative markets - the new opt-out law in Oklahoma being a prime example - threaten to drain good risks from the market and leave higher risks in conventional coverage. Finally, it is too soon to know the impact of health care reform, though in the long run, it seems likely that virtually universal health care should reduce cost-shifting into workers comp.

Perhaps we should add the impact of global warming to the negative side. As storms increase in magnitude, the risks to those who are working when storms hit also increase exponentially.

As the Chinese curse would have it, we live in "interesting times." For the moment, from the rather narrow perspective of the workers compensation market, things look cautiously and incrementally better. But as they say in New England, if you don't like the weather, just wait a minute. It was clear and warm a few moments ago. Suddenly, the wind picks up, the wind chills and the rain comes pouring down. Like a harried underwriter, we struggle to find shelter in the unexpected storm.

Our New Zealand blogger pal Russell Hutchinson lends a global perspective to this week's Cavalcade of Risk #183 - check it out!

Austerity's impact on public health - over at Managed Care Matters, Joe Paduda looks at the impact that financial austerity measures in Greece and Iceland have had on public health, suicide rates, hospital admissions, and other measures of morbidity and mortality.

Implementing Health Reform: Employer Coverage Option Notices - At Health Affairs Blog, Timothy Jost posts about recently released guidance from the Department of Labor's Employee Benefits Security Administration regarding notices that employers must give to employees concerning their coverage options under the Affordable Care Act. He notes that "Employers must provide the notice if they are subject to the FLSA. The FLSA applies generally to employers who employ one or more employees and have a volume of at least $500,000 in annual business. It also applies to specific listed types of employers. Employers must provide the notice to each employee, including part time employees. "

Are Women Really Making It? - an article by Rachel Bennett Steury in Industry Week looks at the status of women in manufacturing and the picture is not good: "Certainly the past decade has revealed a decline in manufacturing employment for everyone but women bore the brunt of job loss in three of the four highest paying manufacturing sectors. According to a recent report by the National Women's Law Center (NWLC), women's employment in chemicals, petroleum & coal products, and computer & electronics products manufacturing decreased while men's employment increased."

Marsh Report Shows Continued Demand for Terrorism Coverage - the current Terrorism Risk Insurance Act (TRIA) is scheduled to expire December 31, 2014. Is this backstop still needed? In Risk Management Monitor, Nathan Bacchus looks at a recent Marsh Report that offers some interesting stats about how prevalence of terrorism coverage by industry sectors and geographic regions. "The take-up rates are highest among companies with total insured value (TIV) over $500 million, but even those companies with less than $100 million in TIV obtained terrorism insurance at a 59% rate in 2012." Meanwhile, many Boston merchants are hoping the recent Marathon bombing won't be labeled as terrorism : "Illogical as that may seem, such a declaration might be the only way these businesses -- many of which did not have specific coverage for terrorism -- can get reimbursed for their losses by their insurance companies."

Extraterrestrial workplaces - And from one of the coolest workplaces ever, International Space Station commander Chris Hadfield offers us a musical interlude. Congratulations to Chris & his crew from the on a successful return to earth - but not without first addressing some safety maintenance issues.

Short Takes

• Texas taxpayers cover uninsured workers' hospital costs as construction companies skirt the bill
• Poorest U.S. States Among Most Wasteful in Unnecessary Medication-Related Costs
• Bangladesh Will Allow Garment Workers To Form Unions Without Factory Owners' Consent
• After Plant Explosion, Texas Remains Wary of Regulation
• The complete guide to sleeping at work
• Can random acts of kindness motivate your employees?
• 10 Things to Know About the Trucking Industry
• Telecommuting and Technology: Ergonomic and Worker's Comp Considerations
• The 5 Most Common Ergonomic Mistakes on a Plant Floor

Finally, we can't resist sharing a video of this incredible and bizarre weather-related oddity that recently occurred in Minnesota. It's doubtful that many homes are insured against "ice tsunamis."

Joe Paduda has a not-to-be-missed robust edition of Health Wonk Review posted at Managed Care Matters. It covers health care cost trends, reform implementation, motivations and more. Get your biweekly dose of health wonkery from the best in the blogosphere to stay current on the trends.

And in other news ...

Texas tragedy & insurance matters
Dallas News reporters Doug Swanson and Reese Dunklin report that West Fertilizer was insured for only $1 million in liability. The explosion killed 15, injured several hundred, and caused an estimated $100 million in property losses. According to state insurance authorities, fertilizer facilities are not required to have liability insurance that would compensate for damage they might cause. The article includes this observation: "A million dollars is a pathetic amount for this type of dangerous activity," lawyer Randy C. Roberts said. "If you want to drive a truck down the interstate, you've got to have $750,000 in coverage, even if you're just carrying eggs," Roberts said. "But if you want to put this ammonium nitrate into this town next to that school and that nursing home and those houses, you're not required to carry insurance."

According to Property Casualty360's Arthur Postal, workers comp for the deceased first responders and injured city workers will be covered by the state's Large Loss Fund. The only West Fertilizer employee involved was a first responder killed in the blast who was covered by the fund -- the company itself has an "alternative benefit plan" since workers comp is not mandatory in Texas -- an issue that raises more questions. See Postal's related article: The Assault on State-Regulated Workers' Comp, which talks about Texas, Ohio, New York and Oklahoma.

Related:

• W.R. Berkley Attorney: Limited Coverage Held by West Fertilizer 'Irresponsible'
• Texas Fertilizer Plant Had Last OSHA Inspection In 1985
• West explosion's first responders need rescuers too, counselors say
• From Washington to West, system failed to protect Texas town from tragedy

Boston Marathon Bombing
Surgeon-journalist Atul Gawande has a must-read insider's account in The New Yorker, which explains Why Boston's Hospitals Were Ready to cope with the emergencies created by the Boston Marathon bombing.

Here's to the Nurses
While on the topic of excellent medical care, it's a good time to note that this is National Nurses Week. It runs through May 12, which is the birthday of Florence Nightingale, widely recognized as the founder of modern nursing. One of the key issues facing nursing -- and one that has an impact on patient safety, too, is staffing levels. See: Nurses Fighting State By State For Minimum Staffing Laws.

State of the Unions
Differences between union and nonunion compensation, 2001-2011 (PDF) - BLS reports: "Union workers continue to receive higher wages than nonunion workers and have greater access to most employer-sponsored employee benefits; during the 2001-2011 period, the differences between union and non-union benefit cost levels appear to have widened."

Cool Tool
The National Conference of State Legislatures offers a Workers Compensation -- Enacted Legislation Database

Worker Memorial Day Followup
Compliance and Safety Blog featured an excellent roundup of links, tributes, historical information, and the 1994 Documentary by Robert Cotter that tells the story of the Hamlet fire in the Imperial Chicken Plant that killed 25 workers, with the story told From The Eyes Of The Survivors. This was an egregious incident - 19 of the deceased workers were mothers with young children. The plant owner locked the emergency exit to prevent theft.

Belated Risk Roundup
While yours truly was off on vacation last week, the risk bloggers weren't: Here's last week's roundup: Cavalcade of Risk #182, posted by Jeff Root of Rootfin, A Texas resident who passed through West, TX within 15 hours of the blast.

Belated Kudos
Hats off to Michael Fitzgibbon, Ontario labor and employment attorney, on his 10 year blogging anniversary at Thoughts from a Management Lawyer - it was a lonely landscape for business bloggers back then, as we well know. He was one of the early links in our sidebar, and is still there today. He names a few other early pioneers in his post.

Other noteworthy news

• Preventing fire fighter deaths, learning from the fallen
• The complete guide to sleeping at work
• Antibiotics could cure 40% of chronic back pain patients
• Tennessee Battles Prescription Drug Abuse
• Text-Mining Analysis Links Drug-Impaired Driving To Higher Injury Rates
• Translator Apps facilitate workplace communication challenges
• EEOC Lawsuits Against Employers Are On The Rise
• Stop obsessing over wellness ROI
• Use of Mobile Health Care Apps on the Rise
• What lies ahead in private disability insurance?

In the Insider's decade of exploring workers comp, we have encountered many unusual instances of compensability, legitimate claim denials and outright fraud. But rarely have we found cases where a claims administrator, in this case, a TPA, simply refuses to pay for medically necessary treatment. The saga of the late Charles Romano reminds us that the great bargain of workers comp is not just between employers and their workers; it includes the good faith effort of claims adjusters to carry out the letter - and spirit - of the law.

Charles Romano worked as a stocker for Ralph's Grocery Company, a California-based operation that is part of the Kroger chain. It is worth noting from the outset that Kroger is self-insured for comp, with Sedgwick serving as the TPA. As a stocker, Romano presumably did a lot of lifting and reaching. He suffered a work related injury involving his shoulder and back in August of 2003.

A Solution Worse than the Problem
After conservative treatment failed to resolve the problem, he underwent surgery in December 2003. What had seemed like a relatively simple solution to a shoulder problem quickly descended into a grave, life-threatening situation: Romano contracted a MRSA infection following the surgery, which led directly to total paralysis. He suffered renal failure and several heart attacks, which were related to the MRSA infection. After enduring inadequate medical treatment directly related to the TPA's denial of treatment, Romano died in May 2008.

Nearly three years after the initial surgery, a workers comp administrative law judge (WCJ) ordered that the TPA pay for all the medical expenses related to the infection. Without consulting with medical professionals, the TPA unilaterally refused all payments - totalling, by this time, hundreds of thousands of dollars. The TPA appealed the adverse ruling.

In February 2012, a workers comp administrative law judge imposed penalties for delay of treatment in eleven specific instances, finding that the TPA "failed in its statutory duty to provide medical care, egregious behavior which increased the suffering of a horrifically ill individual." He imposed the maximum $10,000 fine for each denial of treatment.

Unappealing Appeal
The TPA appealed the penalties for delayed treatment. In what surely qualifies as a new definition of chutzpah, the TPA contended that penalties were not appropriate, among other reasons, because the claimant had died. Well, duh, the routine denial of treatment throughout the course of the illness was a significant factor in the death. Romano simply did not receive medically necessary treatments to address his formidable medical conditions.
NOTE: The penalties, even when maxed out at $10,000 per incident, is dwarfed by the suffering inflicted upon Romano.

The Workers Comp Appeals Board upheld the penalties [For a link to a PDF of the lengthy ruling, Google "Charles Romano Trust vs. Kroger Company]:

The WCJ's Report makes it clear that he imposed the harshest penalties possible under section 5814 because of defendant's extensive history of delay in the provision of medical treatment; the effects of those delays on a paralyzed, catastrophically ill employee; the lengths of the various delays; and defendant's repeated failure to act when the delays were brought to its attention.

Lest the ruling be considered in any respect ambiguous, the court went on to say: "We have rarely encountered a case in which a defendant has exhibited such blithe disregard for its legal and ethical obligation to provide medical care to a critically injured worker."

Risk Transfer, Risk Retention
It is tempting to conclude that the TPA's actions were related to their customer's risk assumption - otherwise known as self insurance. It is one thing to purchase insurance (risk transfer) and have the insurance company assume liability for a catastrophic loss. It is quite another for a self-insured company to absorb a loss of this magnitude on its own. (Presumably Kroger had some form of stop loss in place.) Despite the multiple findings of compensability, despite the judicial determination that the horrendous MRSA infection was indeed work related, the TPA persisted in denying treatments and rejecting payments, long after Romano's untimely death.

As Mark Twain famously noted, "denial is not just a river in Egypt." It's also a poor strategy for managing claims. In his last years, the unfortunate Charles Romano certainly had to confront health issues beyond anyone's worst nightmare; denial for him was not an option. For reasons that remain unclear, when it came to paying for Romano's extensive and expensive care, the TPA chose a path of full catastrophe denial .

In the findings of the court, this denial was in itself an unmitigated disaster for the acutely vulnerable Romano, accelerating his precipitous decline and death. In the interests of saving their client some serious bucks, the TPA dug in its heels and refused to accept the compensability of a claim that had been adjudicated as compensable. In doing so, they violated the spirit and letter of the workers comp contract and earned themselves, in this particular instance at least, a place on the Insider's Management Wall of Shame.

When Jakob Hutter founded the Hutterian Brethren Church in the 1530s, he was not worried about workers comp (which would not exist for another 350 years). He just wanted the freedom to practice his communal religion in what is now Germany/Austria. He incurred the wrath of Ferdinand I, who, in the name of the gentle Jesus, arrested and tortured Hutter and then burned him at the stake. An inauspicious beginning to what has proven to be a stubborn, if marginal sect.

The Hutterites eventually fled Europe and found their way to the western United States and Canada. Montana has about 30 Hutterite communities in the conservative Lehrerleut tradition, each involving about 100 or so members. Community members do not own property or earn wages, they do not pay for clothing and shelter and they receive free medical care, including care for any disabling injuries. (The Hutterites, surprisingly, do have a website.) For many years they worked on their farms and, like the Amish in Pennsylvania (blogged here), they were exempt from workers comp.

As the Lehrerleuts branched out into construction work beyond their own communities, the issue of unfair competition was raised by secular contractors. As a direct result, the Montana legislature passed HB 119, which defined religious communities as "employers" and community members as "employees." The Lehrerleuts sued (although normally participation in law suits is a violation of their faith). A deeply divided court ruled against the Lehrerleuts: they must participate in the state's workers comp system. The next step will be an appeal to the U.S Supreme Court.

A Bad Match
The complex relationship between employment laws and religious groups is far beyond the scope of this blog. We focus, instead, on the interesting conundrums raised by trying to force the Hutterites into the comp system. To put it mildly, this is an awkward fit.

First and foremost, the Hutterites do not pay wages. Without wages, there can be no comp premiums, as these are calculated by multiplying class rates times payroll. Perhaps the court would require that the Hutterites take the total cost of a job, subtract materials, and consider the remainder "payroll." But even so, this would be an approximation for what is an exacting requirement for other employers.

Then there is the issue of filing a claim. Every member of the Hutterite community signs a pledge not to file claims against the community and not to sue anyone for anything. Thus, even if a comp policy were to exist, it would never be used. To make this point even more dramatic, the majority of the Montana justices pointed out that the Hutterites were free to excommunicate any member who did file a claim. What an odd concession: the justices did not bother to explain how this would not be retaliation.
NOTE TO INSURERS: Write this policy! Even in the event of catastrophic injury, no claim will be filed.

And if Hutterites are subject to workers comp, what about the Fair Labor Standards Act and OSHA requirements? The Montana court has not imposed these virtually universal standards on the Hutterites, but why not? What happens to the minimum wage when there are no wages? Can you limit hours worked when there is no payroll to track? How will you monitor underage community members operating equipment?

No Simple Solution
Forcing the Hutterites into the comp system may sound simple, but surely it is not. The majority quotes retired Supreme Court Justice Sandra Day O'Connor, who rejected a challenge brought by Native Americans to enjoin a United States forest service road through sacred areas:

However much we might wish that it were otherwise, government simply could not operate if it were required to satisfy every citizen's religious needs and desires. A broad range of government activities -- from social welfare programs to foreign aid to conservation projects -- will always be considered essential to the spiritual well-being of some citizens, often on the basis of sincerely held religious beliefs. Others will find the very same activities deeply offensive, and perhaps incompatible with their own search for spiritual fulfillment and with the tenets of their religion. The First Amendment must apply to all citizens alike, and it can give to none of them a veto over public programs that do not prohibit the free exercise of religion. The Constitution does not, and courts cannot, offer to reconcile the various competing demands on government, many of them rooted in sincere religious belief, that inevitably arise in so diverse a society as ours. That task, to the extent that it is feasible, is for the legislatures and other institutions.

In the specific instance of religious communities and workers comp, the record across the United States is fairly consistent, for the most part favoring religion. The Amish have a specific exemption from workers comp in Indiana, Pennsylvania, Missouri, Kentucky and Ohio. There are pending requests for exemptions in Minnesota and Tennessee. Supreme Courts in a number of states have upheld the right of churches to govern their internal affairs. Federal legislation exempts the Amish from collecting Social Security taxes.

The Hutterites are no flash-in-the-pan phenomenon. For nearly 500 years they have wandered the earth, seeking the right to worship in a manner of their own choosing. Work, like everything they do, is an integral part of their worship. In telling them how to work, we are telling them how to worship - and that is a line that we cross at our collective peril. If the community were abusing its members, government intervention would be necessary. But if the goal is simply to level the free enterprise playing field, that is hardly sufficient cause for imposing conventional standards on a highly unconventional community.

Each year, April 28 is designated as Workers Memorial Day. OSHA says that, "It is a day to honor those workers who have died on the job, to acknowledge the grievous suffering experienced by families and communities, and to recommit ourselves to the fight for safe and healthful workplaces for all workers."

Here are some planning resources for marking the event.

The National Council for Occupational Safety and Health provides links to Workers Memorial Day Events, as well as a Workers Memorial Day Fact Sheet (PDF) and other resources.

AFL-CIO Workers Memorial Day has resources at their site, including a toolkit (PDF) to prepare for the event and a Collection of Worker Memorials.

USMWF Worker Memorial Day also has a list of planned events and a touching slide show tribute to workers who were killed on the job.

See 2012 Reports:
Death on the Job - AFL-CIO

Dying for Work in Massachusetts: The Loss of Life and Limb in Massachusetts Workplaces

California Dying at Work Report

North Carolina Workers Dying for a Job

Hank Stern at InsureBlog has posted the latest edition of Health Wonk Review, Money Tree Edition. If you have no interest in American health care, you can skip it. But given that health care impacts literally everyone on the planet, this timely compendium is worth a few moments of your valuable time.

We have long touted Massachusetts as the gold standard for workers compensation reform. In 1990 the state operated the second or third highest cost comp system in the nation; today MA is ranked 44th, with rates less than half of those in the other New England states. At the same time, the benefit structure is relatively generous, with a maximum indemnity wage of $1,150. The "taxachusetts" label applies to many aspects of living in the Bay State, but the cost of workers comp insurance is certainly not one of them.

But as is so often the case, failure lurks at the edge of success. The Insider has written extensively about the rate suppression that is opening like a sink hole below the market. The comp rates are so low, even good risks become questionable, simply due to the law of averages. Any company in MA with a .80 mod is by definition a marginal risk, because there is not enough premium to cover the exposure.

Generous to a Point
While benefits for injured workers are for the most part generous, there is one aspect of comp where state benefits fall short of what is needed and what is available in most states: injured workers only receive 60 percent of their average weekly wage, compared to the 66 2/3 percent or higher offered in other states. The 60 percent figure emerged in negotiations during the monumental reforms of 1990; even then it seemed harsh to extract savings from the pockets of those least able to afford it.

Now, in a desperate effort to increase revenues, Governor Deval Patrick is proposing that workers comp indemnity benefits be taxed. As a result, the already reduced 60 percent would be reduced another 4-6%, depending upon the final income tax rate in the new budget. Such taxation would violate the spirit of workers comp and exacerbate the stress of being injured and out of work. One of the unintended consequences of such a tax would be to push injured workers into the hands of attorneys, who thrive on friction and live off the most inefficient and expensive part of comp, cash settlements.

A Matter of Fairness
There are many factors contributing to the MA success story: a stingy fee schedule that doctors abhor, reduced reliance on settlements, which antagonizes claimant attorneys, a speedier dispute resolution process, and a reduction in indemnity benefits for workers.

In the Bay State, injured workers have already paid a price for the lower costs of workers comp. It would be unfair to ask these workers to make even greater sacrifices, when workers in other states receive higher benefits with no taxation. No matter what the rationale for taxing indemnity benefits may be - supporting education, fixing infrastructure - the measly $8 million raised by such a tax would be insignificant when compared to the cost to those least able to absorb it. It's hard enough suffering through the pain of injury and recovery without adding insult to injury by further reducing already reduced income. This is a very bad idea and it should be tossed from the budget immediately.

In 1980, OSHA produced a film about its origins, talking about the rights of workers to a safe workplace. A few year's later, Thorne Auchter, head of OSHA under Ronald Reagan, recalled and destroyed copies of the film. He also banned it, but a few union officials kept hidden copies. The penalty for being discovered in possession of one of these films was losing all OSHA funding for their safety and health programs. Other documents and films depicting workers who suffered the effects of lax safety were also banned as being "too inflammatory."

Jordan Barab talked about Auchter's safety censorship and OSHA funding cuts, as well as the later turn of events - both tragic and ironic - when Auchter's own 22-year-old son, Kevin Campbell Auchter, was killed on the job during the demolition of two silos at the Monterey Coal Co. in Missouri.

Watch the film that OSHA banned.

This film was preserved through the years through the efforts of Mark Catlin, who made this and other censored OSHA films available for digitizing. See more videos at Mark Catlin's excellent Historic Workplace & Environmental Health and Safety Films channel on YouTube.