Archive for October, 2004

Oxycontin and Workers Compensation: Prescription for Trouble

Sunday, October 10th, 2004

There is an interesting convergence of issues concerning the pain killer, Oxycontin. Originally developed to combat cancer pain, Oxycontin has been aggressively marketed over the past three years by its manufacturer Purdue, to the point where the drug is now the pain-killer of preference for work related injuries. This drug is twice as powerful as morphine and, while not technically addicting, it can create withdrawal symptoms when a person stops taking it. According to a study by NCCI, Oxycontin is prescribed for pain in 69% of permanent partial disability cases. This same study also points out that 49% of these prescriptions go to people with back injuries. When you combine that with the next interesting piece of data

When incentive-based compensation programs and bonuses backfire

Wednesday, October 6th, 2004

George’s Employment Blawg (which, incidentally, is always a good read) treats the legal downside of incentive-based compensation, pointing us to an article by Chiree McCain of the Birmingham Business Journal entitled Compensation systems also have legal negatives
The article uses examples of bonuses that may inadvertently encourage drivers to short-shrift safety or drive beyond legal limits and bonuses for accident-free days that may impede accident reporting. While the article doesn’t discuss piecework, we’d put that in the category of a compensation system that often leads to safety problems. It certainly wreaked ergonomic havoc in the textile industry, although today, with much of that industry being outsourced offshore, injuries are probably less in evidence here in the U.S.
In most instances, incentives are intended to be a positive force, motivating employees to excellence but they can be a fertile playing ground for the law of unintended consequences, bringing to mind the age-old saw about the road to hell being paved with good intentions. We’ve certainly seen bonuses for accident-free days backfire, particularly because they are often awarded to a group of workers or a manufacturing division so you have the carrot of financial gain AND the stick of peer pressure at play.
The article suggests possible initeneded consequences of incentive-based compensation:
“They’re [the employer] not saying, ‘I’ll give you extra money if you go break the law’ … but the company can face liability for the conduct that is illegal,” he says.
Gittes says employers could face liability for on-duty actions by an employee or an independent contractor because, either way, that person is acting as an agent for the company.
And if a plaintiff can identify a pattern of accidents or illegal behavior, a compensation system that encourages that behavior might raise the stakes from negligence to deliberate disregard and therefore introduce punitive damages into the mix.
“If they were put on notice that their policy was being interpreted by employees in ways that threatened the safety of others and they continued to do it anyway, there could be an issue about punitive damages,” Gittes says.

The downside can be costly. In January, we reported on a $12 million lawsuit based on bad faith for a claims handling practice allegedly involving incentives to claims staff for lowering the cost of claims

Applications being accepted for John Jones Scholar in Workers’ Compensation Research

Tuesday, October 5th, 2004

Are you a researcher with an interest in workers compensation? If so, you may want to submit an application to the John Jones Scholar in Workers

New Overtime Regulations Impact Workers Compensation

Monday, October 4th, 2004

[We are pleased to welcome as a guest blogger today our favorite actuary, Don Bashline of Bashline & Associates, based in Watertown, MA. Don has some interesting thoughts on the federal government’s new regulations pertaining to overtime, which have a direct impact on workers compensation.]
On August 23, 2004, the U.S. Department of Labor’s new regulations defining worker eligibility for overtime pay went into effect. In a possible attempt at subliminal spin, the program is called “Fairpay.” Let’s say it’s “fair” for some and not so fair for others. For a critical view of the regs, see the white paper at the Economic Policy Institute. Although the net effect of the new regulations won’t be totally clear for a while, no one disputes that some low-wage workers (earning less than $23,660 per year) will gain overtime protection, while many others will lose it. Among the apparent losers: sous chefs, childcare workers and a very large number of supervisors…
The regulations are complex and employers will have some flexibility in implementing them. There have already been cases where employers have given raises (good news?) to employees near the $23,660 threshold, resulting in those workers losing eligibility for overtime (bad news!). Others have chosen to preserve overtime eligibility for workers in high-demand occupations (for example, nurses) that theoretically could have been exempted under the new regulations.
What does this mean for workers compensation? The net effect of the new regulations is to lower the wages of many workers. This will impact workers compensation in two ways: First, overtime wages are included in the calculation of an injured worker’s average weekly wage. With changes in eligibility for overtime, average weekly wages for many workers will decline. As a result, the weekly workers comp indemnity payments for these “exempt” injured workers will also decline.
In addition, these changes will impact workers compensation premiums, which are calculated based on a rate per $100 of payroll. With payrolls declining due to the new regulations, insurance premiums will also decline. Insurers, particularly those who have a high percentage of premiums in affected classifications, will need to think about calculating the estimated impact of these changes on both premium income and claim costs. Employers, especially those who are self-insured, might also need to assess the impact of the new rules on their projected workers compensation costs.
The impact of these new regulations on workers comp calls for careful scrutiny in the coming months. LynchRyan will keep you posted.