Pittsburgh (almost) Gets It!

November 11th, 2005 by

Workers comp can be frustrating for employers of all sizes — from the mom & pop store on main street to Fortune 500 giants. But somehow most problems in the private sector seem pretty managable when compared to public sector entities. Take the city of Pittsburgh. We read in the Tribune Review that they have an annual budget of $23 million for workers comp, which includes over 1,000 claims, 3,700 employees and 10 collective bargaining units. Despite a declining city workforce, the budget for comp is growing.
As we have pointed out in the past, one of the major problems for public sector entities is the budgeting process itself. There is no incentive to clean up old claims, because that would only increase your short term costs. It’s cheaper in the short run to pay monthly indemnity benefits for out-of-work employees than confront the issue by settling out the claims, thereby reducing your long term costs. Today’s mayor is not really concerned about making the job easier for his successors.
Settling the Old Claims
Over 21% of Pittsburgh’s workers comp payments in 2003 went to employees who were injured over 20 years ago! The city is paying over $2.5 million a year to support these claims. My first thought is how much needless waste is contained in those numbers: here are skilled people being paid to do nothing because the system could not bring them back to work. Many (but not all) of these claimants would prefer a productive life.
As part of a massive government restructuring project entitled the Act 47 Recovery Plan (PDF with 230 pages), Pittsburgh is working with a number of consultants to improve basic government functions. One of these consultants, Philadelphia based Public Financial Management (PFM), Inc., has made a number of recommendations for lowering workers compensation costs, including a pilot program to settle out old claims. They have settled 14 claims in the current year, with a total cost of $652,000. The average settlement cost $50,000 with an average worker age of 47.
After the pilot settlement project has been evaluated, with particular reference to future savings, additional money is likely to be set aside to continue the program. Settling old claims can be grueling and thankless work. As a cost control measure, it’s akin to closing the barn door after your horses have already wandered into your neighbor’s field. Nonetheless, it’s worth the effort.
Collective Bargaining & Modified Duty
The Act 47 report identifies a number of obstacles to controlling costs in Pittsburgh. Perhaps the biggest one lies in the collective bargaining area. Under the current contracts, modified duty assignments can only be offered in the injured employee’s home department. Injured employees cannot be moved among city departments to find appropriate jobs. This is unfortunate, because the vast operations of a major city offer numerous opportunities for lighter duty jobs. Virtually any physical limitations could be accommodated. To be sure, there may be wage equity issues, as higher paid employees (police and fire) are moved into lower paying positions. Nonetheless, these problems are solvable. And the bottom line is simple: keeping injured employees productive will speed their recovery and lower the costs of workers comp.
I must note, however, that an expanded light duty program does not even make the list of recommendations. Perhaps the political ramifications are more than the city is willing to take on at this time. I think Pittsburgh has done an admirable job of identifying the sources of their workers comp costs. Many of their recommendations are solid and will bear fruit in the months and years ahead: settling out old claims, adding a safety manager to the citywide risk management team, tightening the managed care contract, holding monthly case management conferences. But modified duty is the single most important tool in controlling losses. Unless they are able to expand the modified duty program through the collective bargaining process, their efforts will fall far short of what can and should be done to control comp costs in a major American city.