Archive for April, 2009

When the Bond is Broken: Workers Comp and Lay Offs

Monday, April 13th, 2009

Last week Julie Ferguson blogged the interface between workers comp and recessions. For the most part, the news is good: during tough economic times, the frequency of injuries goes down, as workers hunker down and do their jobs as well and as safely as possible. But there is a big downside to downsizing: lay offs raise the specter of injuries – legitimate or otherwise – that are no longer under the employer’s control.
The most effective tools for managing comp losses are in the hands of the employer: by responding to injured workers in a supportive manner, by securing the best available medical care and by speeding recovery through the prudent use of temporary modified duty, employers are able to keep employees positive and productive throughout the recovery process, all the while holding losses to a minimum.
But after lay offs, the employer tool box is virtually empty. There is no trust – most often, there is no relationship – between employer and former employee. The employer cannot manage the recovery process. The bond between employer and employee – whether it formerly was strong or weak – disappears altogether. Laid-off employees often feel anger toward their former employers and could care less about driving up the cost of insurance. In the context of considerable vulnerability and resentment, employees have to find their own path through the disability maze.
Who Manages, Who Cares?
After a lay off, injured employees are on their own. Where once there were (at least theoretically) two supporting pillars – the employer and the insurer – now there is only one. And where the insurer once relied upon the employer to maintain open lines of communication with the employee during recovery, the communication has been severed. The goal cannot be to return the employee to the prior job, as that job no longer exists. The modified goal is securing a release for full duty from the treating doctor, at which time benefits can be terminated.
After lay offs, employers have relatively little leverage in the recovery process. The burden falls almost exclusively on the (usually overworked) claims adjuster. And there is little incentive for the adjuster to aggressively manage the claims of laid off workers. These claims tend to fall through the cracks in the system, resulting in higher than necessary costs.
So here is a little advice to employers who find themselves laying off workers with (real or alleged) work-related injuries:
1. Aggressively manage any injuries reported at or near the time of lay offs. [For details, contact LynchRyan.]
2. Use the leverage of ongoing benefits to keep lines of communication with laid-off workers open.
3. Once laid off employees report injuries, keep in close contact with the claims adjuster. While you cannot offer return-to-work options, you can actively strategize open claims and ensure that the adjuster keeps these claims on the radar screen. This continued collaboration goes a long way toward reducing the ultimate cost of a claim.
Lay offs are traumatic for everyone, employers and employees alike. The bond of trust – such as it is – has been irretrievably broken. But even with the employer tool box stripped bare, there are still opportunities to keep losses at a reasonable level. The key is quite simple: even though workers are no longer employees, management must continue managing. That might sound like a “duh,” but all too often in the world of business, out of sight means out of mind.

Rocky Mountain Two Step: Destabilize and Deprivitize?

Thursday, April 9th, 2009

Colorado, like most states, is facing a serious budget deficit. They are scrambling to balance the budget. So the legislature came up with the brilliant idea of tapping the reserves set aside by Pinnacol, the state’s largest provider of workers comp coverage, with 70 percent of businesses in the fold. Pinnacol began as a state operation and was subsequently spun off. It now operates – very profitably – as a mutual insurance company.
The state, facing a budget deficit of $1.4 billion, has its eye on $500 million that Pinnacol has set aside to cover the future costs of current claims. They have proposed a Rocky Mountain two step: first, make Pinnacol a state agency, as it once was, thereby assuming control of the company’s assets. Then, draw $500 million from the reserves and use them to cover a chunk of the current budget deficit.
As is so often the case, Pinnacol is being punished for being successful. Despite having reduced comp premiums by 42 percent over the past four years, and despite having set aside the funds needed to cover future obligations on current claims, Pinnacol is now the proverbial sitting duck. Blinded by cash in the coffers, legislators are poised to make two big mistakes: deprivatize a successful privatization and destabilize a financially stable operation. What are they smoking in the thin mountain air?
Mediocre Alternatives
A consortium of Colorado businesses has lined up against the ill-advised measure. As an alternative, they suggest three steps to close the budget gap:
: “tobacco securitization” – selling bonds against future tobacco settlements [after the economic debacle of the past 8 months, you might label this proposed process insecuritization.]
: sell state buildings [in a depressed market???]
: Reduce the pay of all state employees across the board [easy for the private sector folks to say]
At this point, I’m not convinced that either plan is worth pursuing. As a general rule, it is a bad idea to solve big,short-term problems by making bigger, long-term mistakes. Here’s hoping that cooler heads in the clear, mountain air of Colorado kick back with a Coors and figure out a better path toward solvency .

Workers comp and safety in a recession

Thursday, April 9th, 2009

Recessions tend to place downward pressure on workers’ compensation frequency, according to NCCI economists who made a recent presentation to the Casualty Actuarial Society. That makes sense. Reduced payrolls means fewer claims. Plus, with potential layoffs looming, some employees may be reluctant to report injuries – which might be part of the reason why there can be an uptick in claim reports after a layoff. The folks at NCCI note that economic expansions are times when frequency spikes – more injuries occur as payrolls climb and new, less experienced employees are added to the work force.
But despite a drop in frequency, safety experts would caution that an economic downturn requires greater vigilance, not less. In a white paper entitled Leading Safety in a Downturn, staff at BST point out that like many other operational areas, safety budgets are often cut and staff are forced to maintain the same standards with fewer resources at their disposal. They also suggest that in a downturn, there is a more complex cultural risk posed by changes in the business: “Even if it is not intended, an organization responding to economic conditions can experience a climate shift that puts a higher focus on production than safety. These shifts are “loud” to the employees who will take away from these experiences long-lasting memories of how they were treated and what they perceive the organization to truly value.”
The authors suggest that a downturn can be a defining moment in a company’s culture, and note that “how you do the hard stuff matters.” They offer five critical actions that business leaders should take to be transformational leaders and to ensure continued safety excellence during a downturn.
More on recessions and workers comp
We’ve talked about workers’ comp and recessions before, specifically, the impact on claims. We cull out this quote from a California study of prior recessions:

“In a six-state study, researchers noted that “…recessions increase back-end cost drivers (i.e., increase the cost per claim) to a greater extent than they increase front-end cost drivers (i.e., increase the number of claims). They state that recessions are ‘characterized by increased use of the system, longer duration claims, and more frequent and larger lump-sum settlements.'”

In a prior post, Down the Rabbit Hole: The Economic Crisis and Workers Comp, my colleague Jon also talked about some other aspects of the current economic scenario that are playing out in workers’ comp. These include the impact of the economy on the illegal immigrant work force, the fact that older workers may be forced to work longer since retirement funds have been destroyed, and the downward pressure that poor investment returns are putting on insurers.

A World of Risk

Wednesday, April 8th, 2009

The latest edition of Cavalcade of Risk, hosted by Joseph Leppard, is available here. Oh my, there’s risk aplenty: in health care, in life, in investing and in the economy. Perhaps it’s time to create a Cavalcade of Safe Havens (assuming, of course, that such places still exist). In the meantime, if your looking for some compelling reading about risk, this should satisfy the need.

OSHA under fire from DOL Inspector General reports

Tuesday, April 7th, 2009

OSHA has come under withering criticism in a report from the Department of Labor’s inspector general for improperly enforcing safety and health laws against high risk employers with a history of safety violations and/or fatalities. In summarizing the report, Occupational Health & Safety notes: “The March 31 report says EEP [Enforced Enhancement Program] was mismanaged so badly that OSHA did not comply with EEP’s requirements for 97 percent of sampled cases qualifying for it. No appropriate enforcement action was taken in 29 cases, the IG found — and those employers subsequently experienced 20 fatalities, of which 14 deaths shared similar violations, the report states.”
The report – Employers With Reported Fatalities Were Not Always Properly Identified and Inspected Under OSHA’s Enhanced Enforcement Program (PDF) – summarizes the results of an audit of 325 work place inspections conducted under EEP from 2003 to 2008 in the Atlanta, Chicago, and Dallas regions.

The Pump Handle posts not just about this report, but also about a second report by the DOL Inspector General concerning the services provided by Randy Kimlin. Celeste Monforton discusses remuneration and oversight irregularities in regards to the consulting services of Kimlin, friend of OSHA chief Ed Foulke. According to investigative reporting by Washington Post reporter Jeff Smith, Kimlin’s salary for his contract was “higher than that received by Vice President Cheney, any member of Congress and Foulke himself during that period.” And the contract was awarded without competition: Procurement Violations and Irregularities Occurred in OSHA’s Oversight of a Blanket Purchase Agreement (PDF)

For more commentary and news on these reports:
Claims Journal: Labor Department Enforcement Lacking, Report Finds
OSHA Underground takes issue with the report on weak enforcement of fatalities: IG’s Report Links Weak Enforcement To Job Fatalities and suggests that OSHA Should Request Repayment From Consultant
Washington Post: Initiative On Worker Safety Gets Poor Marks – IG’s Report Links Weak Enforcement To Job Fatalities
AFL-CIO Now Blog: Sweeney: Bush OSHA Failure to Enforce Job Safety Law Cost Workers’ Lives
Associated Press: Labor Department enforcement lacking, probe finds

The Yogi Berra HWR, plus AIG, Florida lawyers, scaffolding & more news notes

Thursday, April 2nd, 2009

Anthony Wright hosts Health Wonk Review at Health Access WeBlog this week, and he serves up some of the wit and wisdom of baseball great Yogi Berra with this week’s best of the health care blogs. It’s a perfect posting for our times when “the future ain’t what it used to be.”
Florida – a bill that would restore a cap on attorney fees passed its first hurdle this week when approved by the Florida House. It must also pass the Senate and be approved by Governor Crist. Attorney fees were considered one of the primary cost drivers in the Florida system and a cap on fees was one of the cornerstones of the 2003 reform, but was overturned in the Supreme Court Murray decision last November. See our prior posts on the topic: Attorney Fees in Florida: What is “Reasonable” and Florida Lawyers Win, Employers Lose.
AIG – In addition to all the other ongoing investigations, state insurance regulators are currently examining whether AIG violated rules governing workers’ compensation sales. “The probe is an offshoot of a 2005 lawsuit from then-New York Attorney General Eliot Spitzer, who said AIG shortchanged the premiums used in calculating its obligations to state pools. In most states, companies that sell workers’ compensation must fund pools that serve as insurers of last resort to cover injuries at employers that pose unattractive risks.” The 50 state regulators expect to have their investigation completed by June.
Legal matters – In this month’s Legal Clinic at Human Resource Executive, employment law attorney Keisha-Ann G. Gray tackles a few tricky legal questions: the length of time an employer must keep a job open for an employee who suffered a work-related injury, which touches on the anti-retaliation principles that apply across many states; also, a discussion about the relationship between the FMLA and workers’ comp leave.
Scaffolding – Scaffolding (general requirements, construction 29 CFR 1926.451) was the most frequently cited standard in fiscal year 2008 by federal OSHA. It is also the standard for which OSHA proposed the second highest penalties. OSHA has resources to help employers and employees identify scaffolding hazards and solutions to those hazards at scaffolding and the OSHA publications page.
Workplace violence – HUB International Risk Consulting is offering a free Webinar on April 9: To learn more or register: Workplace Violence, What You Don’t Know Could Kill You

New York Workers Comp: Truth Stranger than Friction

Wednesday, April 1st, 2009

The New York Times has a fascinating, two-part article about serious problems in New York’s workers comp system (parts one and two). New York has long been famous for its bizarre system, which is among the most expensive in the nation, even though its benefits have been among the lowest. There’s a lot of money moving around, but not much of it ends up benefitting injured workers.
New York’s system is the most frictional in America: virtually every step of every claim is reviewed by a judge. The lawyers make their money simply by showing up at hearing after hearing.
This cumbersome system routinely results in inordinate delays for injured workers. In a review of 2007 claims, AIG found that even unchallenged cases plod on much longer than necessary. Lost time claims took on average 802 days to reach a final stage, 30 percent longer than in the rest of the country. In comp, time is money, but not necessarily money well spent.
The Times article zeroes in on an area where you do not expect to find friction: the independent medical exam (IME).
In most states, IMEs are commonly used to establish a (relatively) objective profile of an injury. Representing neither the injured worker nor the insurer, IMEs try to separate fact from fiction and provide a road map to future management of the claim. It is in the best interests of insurers, employers and injured workers to make the IME process as objective as possible.
In New York, the IME system is corrupt and chaotic. IMEs are routinely performed by retired doctors who have little or no interest in fair outcomes. It appears that many IME doctors slant their results toward the insurer, under the dubious notion that “he who pays gets his way.”
The NY statute allows injured workers to videotape the IME exams: based upon the findings in these articles, this is a right that every injured worker should exercise routinely, even if it means using the taping capabilities of a cell phone.
Here’s just one of a number of appalling examples of IME corruption in New York:

Dr. Hershel Samuels, 79, with a radiant smile and a burst of snowy hair, stopped doing surgery years ago. Until recently he commonly filled his days performing insurance exams on workers, sometimes as many as 50 in an afternoon, he said in his small office in Borough Park, Brooklyn. [Fifty exams in one day!]

“You obviously can’t spend a lot of time with that volume pushing up your back,” he said. “You have to assume there are going to be errors. Look, there are a lot of holes in this thing.”

At times, evidence shows, Dr. Samuels’s official reports were quite different from what he appeared to find during an exam.

Consider his 2007 examination of Johanne Aumoithe, a pastry chef who said she had hurt her arm and neck. On a videotape that Ms. Aumoithe recorded on her cellphone, Dr. Samuels comments that she had limited range of motion. His written report concluded the opposite.

Asked about the discrepancy in an interview, Dr. Samuels chuckled and said he could not even recall the people he saw yesterday. The way he worked, he said, was to submit a checklist to a Queens company called All Borough Medical, which transformed it into a narrative.

“I never write a sentence,” he said. “It’s really crazy, but that’s how it’s done.”

He often inserted numbers in the checklist — say, a measure of hand strength — after the person left, rather than as he performed the tests.

Was he sure they were correct? “I’m not sure of anything,” he said. “They’re just a guess in the first place.” [I wonder how occupational doctors feel about that.]

The law requires a doctor to attest to the accuracy of a finished report before signing it, but Dr. Samuels said he rarely read them. He doubted he had read the Aumoithe report. “I just sign them,” he said.

If he seldom read them, how did he know they were correct?

“I don’t,” he said. “That’s the problem. If I read them all, I’d have them coming out of my ears and I’d never have time to talk to my wife. [Kudos to Dr. Samuels for wanting to talk to his wife!] They want speed and volume. That’s the name of the game.”

Dr. Samuels said he generally received about $100 for one of these exams.[That’s about $95 too much. And by the way, Dr. Samuels is no longer performing IMEs.]

Under the circumstances, IMEs should be dubbed “insurer medical exams” or perhaps just “Incoherent Mediocre Estimates.” It is not surprising to find that many judges in the New York system ignore IME results and rule in favor of injured workers. But that begs the question: why does New York tolerate a system that routinely delivers unreliable information? Zach Weiss, the new chairman of the workers’ compensation board, said that he found the disparities in medical opinions shocking and that use of independent examiners was “off the charts.” But then again, there is a limit to how many problems he can tackle at one time.
The Burden of History
New York’s comp system grew directly out of the adversarial relationship between labor and management that characterized the early years of the 20th century (and which still exists in many places today). The continuing, pervasive use of judicial review for routine claim transactions is an indication that distrust between workers and management is built into the system’s archaic infrastructure. (As appalling as the pro-management corruption of the IME process is, I am sure that equally repellant stories about worker fraud can be uncovered in the Empire state.)
When Barack Obama was elected president of the United States, the satirical Onion News headlined, “Black man given worst job in America.” With all the problems facing the New York Comp Board, Zach Weiss can make the case that his job is ridiculously difficult, too. And, alas, it comes with no where near the perks.