Changes to Workers Comp Coverage in the Political Climate

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Workers Comp Matters

Changes to Workers Comp Coverage in the Political Climate

04/24/2018

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Intro: This is Workers Comp Matters, hosted by attorney Alan S. Pierce, the only Legal Talk Network program that focuses entirely on the people and the law in Workers’ Compensation cases. Nationally recognized trial attorney, expert, and author Alan S. Pierce is a leader, committed to making a difference when workers comp matters.

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Alan S. Pierce: Welcome to Legal Talk Network and Workers Comp Matters. I’m your host Alan Pierce from Pierce, Pierce & Napolitano in Salem. We are broadcasting or recording today from the Workers Compensation Research Institute (WCRI) 34th Annual Issues & Research Conference here at the Westin Hotel in Boston, and we are very pleased to have as our guest, Dr. Richard Victor.

Many of you who’ve listened to Workers Comp and know about Workers Comp Matters, you should be familiar with Rick Victor. He is now the First Senior Fellow of the Sedgwick Institute, but in 1983, he founded WCRI here in Cambridge and he directed its growth as President until 2016.

WCRI is an independent nonprofit research organization which strives to help those interested in making improvements to the Workers Compensation system by providing highly regarded objective data and analysis.

Dr. Victor is a graduate of the University of Michigan where he received his Master’s and Ph.D. in Economics and he just delivered a very widely anticipated and well-received talk about what we’re going to talk about today, which is what we may be doing in the year 2030, those of us who have grown up and lived in the Workers Compensation system.

So, first of all, before we begin, Rick, I’d like to thank our sponsors, Case Pacer trial practice management software for the busy trial professional. To learn more, go to  HYPERLINK “http://www.casepacer.com” casepacer.com; and also, find a local private and qualified private investigator in your area, go to  HYPERLINK “http://www.pinow.com” pinow.com for more information.

So, Rick, thank you for joining us on Workers Comp Matters and for your sort of crystal ball, so to speak, as best you can, with this unique system of social insurance that we’ve come to know and love known as Workers Compensation.

Rick Victor: It’s a pleasure.

Alan S. Pierce: Okay, you kind of began your presentation today by sort of selecting arbitrarily a date of 2030, some day to explain the significance of really where that date hypothetically is in relationship to where we are today.

Rick Victor: Well, I wanted to pick a date in the future, but not in the distant future. So, 2030 is really a metaphor for not that long from now.

Alan S. Pierce: Right, and the other thing I’d like you to do, because you did it so well and so quickly. Within a minute or two, you brought us from really the origins of workers comp at least in the United States in 1911, up to where we are now with the appropriate benchmarks along the way, and you use that as the launching point of really where we go from here, what lessons have we learned, what we might not be able to do as successfully as we did.

So, why don’t you give us a benefit of that? I found that probably the most interesting one or two minutes predicate to us a talk I’ve heard in a long time.

Rick Victor: So, Workers Comp systems have — in a number of states have celebrated their hundredth anniversary, which is a fabulous accomplishment. One of the questions I was interested in is, so what does a social program have to do in order to have that kind of longevity and success, and the more I thought about it the more, it occurred to me that you need to have a good change process because the world changes, the exterior environment changes, technology changes, and also the system in Workers Comp, usually seeks to meet some vague balance between the interests of employers and the interests of workers.

Alan S. Pierce: And when that balance is out of balance and that balance is I guess more hypothetical than real, like a broken clock, you really twice a day, it’s right, but –so I think maybe even less are these systems in “balance”. Historically and traditionally when a system gets out of balance either adverse to the interests of one party or adverse to the interests of the other party, and right now we’re really talking about the two major parties, the employer and the labor. What typically happens or has happened?

Rick Victor: Yeah, the experience has been very, very positive. Example; in the early 1970s, President Nixon appointed a National Commission to look at Workers Compensation and it concluded that the systems were not serving workers as well as they should.

(00:05:04)

So, the system is being out of balance. The Workers Comp Perform process over the next decade and many states was focused on how do we improve the system for injured workers? And then, in the late 1980s, early 1990s the cost to employers were rising year after year at double-digit rates, and that wasn’t sustainable, so the system was out of balance because the pendulum had swung too far. And then, for the next decade or so, the Workers Compensation reform, the change process, was focused on how do we improve the functioning of the insurance markets and how do we attack some of these cost drivers?

Alan S. Pierce: And that has led to the error that we are either still in or sort of coming out of which is extracting as much reduction from my perspective of representing injured workers from the expense side, at the expense of our clients as you probably can. So, what you’ve been describing is, these changes, 72 Commission and then the expansion of benefits and then the retraction of those benefits all in an effort to bring costs in line with expense and benefit. That all came out of a process that starts with the letter P, which is the political process, which is I think if not the central thesis a sub-thesis of your presentation today as to why we might not expect the political process as it has worked for the last hundred years to effectuate these shifts in balance to rein in or bring up to speed the deficiencies in the system.

Rick Victor: That’s exactly right. So, the reasons why the systems got out of balance historically had to do with features of the Workers Compensation system or the behavior of the players within the Workers Compensation system, and those were things that Workers Comp perform and State legislatures can do by modifying Workers Compensation systems.

That is always going to be an issue, but the issues that I focused on today are forces outside of the Workers Compensation systems that I believe will be acting on the Workers Compensation systems to significantly increase costs without improving benefits for injured workers and then the systems get out of balance again.

Alan S. Pierce: In fact, what was, I think refreshingly novel in your presentation is, every discussion of what we’ve really been talking about has always dealt with the internal pressures that have caused the system to need to be changed, and I don’t think we’ve ever paid or at least I haven’t paid much attention to what you see is some of these external forces much of which are extraordinarily timely given the political climate we are in.

So, I’d like to touch upon that and you mentioned a variety — well, first of all, I think you laid out a scenario that perhaps by 2030 or whatever that arbitrary date may be, that if you asked us to imagine that without any changes in benefits to workers that there would be significant changes in claims frequency, increased claims and increased cost of claims that the system will be so out of balance financially that it may lead to not necessarily a tweak or an adjustment but a wholesale new approach of dealing with injuries in the workplace.

Rick Victor: So, I think that’s worth entertaining because these external forces are not really easily influenced by State Government.

Alan S. Pierce: So, let’s kind of run down those forces; so why don’t you give us an idea of the major ones that you see as exerting that type of pressure?

Rick Victor: The ones that I talked about today are the aging of the labor force, labor shortages that will be pervasive and long-lasting unlike anything we’ve seen in the past. Made worse by immigration restrictions that the current administration seems fascinated with, and then on the healthcare side the evolution of group health insurance and individual insurance under the Affordable Care Act has meant for many, many workers, much larger deductibles, and other kinds of cost-sharing.

Alan S. Pierce: Let’s take that last one first. We now have an administration which has made it clear by coming into office and since it has been in office that the repeal and/or replacement of the ACA otherwise known as Obamacare is taking place, has taken place, we don’t know where that’s going to end and what if anything will replace it, right now it looks like nothing, but I remember not too long ago even here when we had the ACA, the focus of some of these presentations, what effect will the Affordable Care Act have on Workers Comp and we were predicting that perhaps having universal healthcare may increase, decrease where doctors and/or providers might want to put there. So, how is the repeal of Obamacare a factor in frequency and claim expense on the medical side in Workers Comp?

(00:10:12)

Rick Victor: Well, as more people get lose their insurance and a full repeal would lead according to the Congressional Budget Office to 22 million people under the Senate Bill from last summer, losing their health insurance, and that I’ve estimated is about nine million workers losing their health insurance. That would lead workers who have become used to getting their healthcare paid for by an insurance plan to all of a sudden say, how am I going to continue getting my healthcare paid for? And when they look around, one of the places that may well make sense to look at is Workers Compensation, which provides free care, no deductibles, no co-payments.

Alan S. Pierce: And that doesn’t necessarily mean that an accident is suddenly going to happen. I don’t think we’re suggesting that, but I think we’re suggesting and this ties in with the aging workforce and the boomers sort of aging out of the workforce that a lot of pain, soft tissue injury, which you mentioned, and losses of function in the workplace are more attritional and bodily wear-and-tear or repetitive stress so that we are seeing probably an increased frequency in dates of injury which are various dates 11:31 including a specific date or a last day of work.

So, may I assume that that’s where those claims are going to come from? It’s not that you just lifted a box or could be you lifted a box on that back that’s been a nagging sore, is now acutely sore and you’re off to the doctor on a Workers Comp plan

Rick Victor: Well, I think it could be both, but certainly where it’s murky about whether causation — scientific causation, not legal causation, was work-related or not work-related or both, that’s where the case shifting, as I call it, might occur.

If you think about a worker with back pain and a $5,000 deductible, goes to see their doctor. They’re handed a form and as they work their way down the form, they see a box, Is this work-related? Check Yes, Check No, and the worker used to think, probably didn’t think at all because they’re deductible was $500. Yeah – no, this didn’t happen at work or I don’t know. I lift things at home, I lift things at work. But when my deductible is $5,000, it gets people’s attention, so what I’m postulating and there’s some data to support that workers will more often say, yes, than they did in the past on that medical form.

Alan S. Pierce: And an attending physician may be more likely to also say yes to legal causation because it’s a quicker and easier way of getting paid.

Rick Victor: That’s certainly true. It’s actually even more than that. Workers Comp tends to pay physicians more than Blue Cross health insurers do, so there’s financial incentive and WCRI has done a study that quantifies that, and then as we move away from fee-for-service outside of Workers Comp, doctors are being paid bonuses for meeting financial targets. And, one way to meet a financial target for the health insurer is to indicate something’s work-related and then it doesn’t count towards the target that you have to meet.

Alan S. Pierce: Very interesting, very interesting. At this point, I think we’re going to take a short break and when we come back, we’ll continue our discussion with Dr. Richard Victor on external forces that may change the way we look at how injured workers are compensated in the workplace. We’ll be right back.

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Alan S. Pierce: We are back with Richard Victor. This is Alan Pierce on Workers Comp Matters. When we left off with Dr. Victor we were talking about what I think was described as case shifting and I wanted to maybe clear up the distinction in our listeners’ mind from cost shifting. We have talked about cost shifting on this show, this podcast times before where costs that should be properly borne by the workers’ comp carrier is somehow shifted to other sources.

Explain the difference of case shifting, how that differentiates from cost shifting?

Rick Victor: An example of cost shifting is because healthcare provider organization might have market power, they can charge workers’ comp, which doesn’t have much market power, $5,000 for a surgery when the health insurer down the street pays them $1,000. Case shifting is the entire episode of care for an injured worker, ordinarily would have been brought under the health insurance policy, but it ends up in workers’ comp.

Alan S. Pierce: And this whole concept of case shifting and choosing workers’ comp as the delivery vehicle for healthcare is just part of the scenario you paint. That would create this increasing cost that may cause the system to go so seriously out of balance that it needs to be either replaced or reconfigured.

The others that you mentioned where things that I think are almost counterintuitive, one is labor shortage. Intuitively I would think, well, if there is a shortage of labor, does that mean there are less people working? If there are less people working, there are less people getting hurt, there is less business for me and there is less business for the doctors and the claims adjusters.

So tell me how labor shortages are affecting this dynamic of increasing costs to the system at large.

Rick Victor: Well, we are on the verge of seeing widespread labor shortages across many industries and in all parts of the country. And what happens when we have a sustained labor shortage is that employers relax their hiring standards and they more often hire workers who are less capable or have a weaker attachment to the workforce, they are more injury-prone and they are more claim-prone. So as those workers who wouldn’t otherwise be hired get hired more and more and more because that’s what’s available, injury frequency will go up, as will the duration of disability.

Alan S. Pierce: And I think some of the other things you touched on, again, being one myself, the aging baby boomers who are aging out, as we age out, we are aging out with the aches and pains that we have accumulated over the years and sometimes before we exit the stage, we become a workers’ comp claim.

Rick Victor: Well, certainly the data show the older someone is, the more likely they are to have a workers’ comp claim and also to have an injury.

Alan S. Pierce: And the way the system as we have been accustomed to seeing it work to restore the checks and balances has worked to address that is to create another category.

You mentioned legal causation and medical causation, there’s that third category that I think addresses that, which I call political causation. So medically the doctor can somehow make a case that this arthritic knee is work-related or the adjudicating authority determines it to be work-related, because as we know, the employer takes the employee as he finds them and if you aggravate an arthritic condition, you are responsible, then we get politics and we get legislators now redefining what is and what is not causally related and that’s the so-called major cause standard or the predominant cause standard.

So at some point even that no longer I guess is addressing some of these factors about the aging workforce and the ability of the system to deal with it.

Rick Victor: For injuries for which there is no solid scientific evidence that work or not work causes it, we are constructing legal fictions, necessary legal fictions, but legal fictions. And so those then get redefined as the politics and the winds of politics shift. But when a doctor and a patient are together, they are going to look at what really happens, what do we really know and then they will also be influenced subtly, because I am not talking about fraud by, oh my God, this could have been work or it couldn’t have been work, I could call it either legitimately, but I have a $5,000 deductible, so I am calling it work.

Alan S. Pierce: And workers’ comp of course, there is no deductible, it’s free care, so to speak.

Rick Victor: It is.

Alan S. Pierce: The third important factor you mentioned was the immigration policy of this country. Now that is something that could be temporary, like all cycles. We heard from our past guest Dr. Groshen about business cycles and how that affects everything, including workers’ comp, factor in our current immigration policy into this mix.

(00:20:09)

Rick Victor: Well, this is in the context of labor shortages. Demographers have been warning about labor shortages for the last 20 years. The thing about demographic data is, you can see what’s going to happen well in advance.

Alan S. Pierce: Even with automation, robotics and AI?

Rick Victor: You know about birthrates and death rates. So what they have been saying is this labor shortage will be a serious drag on economic growth in the United States. You don’t have enough workers to get the work done, you can’t produce, you can’t grow as fast.

But then the demographers have always said but you shouldn’t worry too much because the US is a very attractive place for people to immigrate to and those immigrants then will offset the labor shortage and we get some very, very capable people who are immigrating to the US. A quarter of physicians in the US these days are foreign-born.

Alan S. Pierce: Not only were you talking about our immigration policies in the context of labor shortage, but you were also talking about it, something I really didn’t think about either, is the quality of healthcare. You had an amazing stat and I am not a stat guy, but even I understood this one, in Great Britain after Brexit and what happened there, you might want to describe that. That was eye-opening.

Rick Victor: So I was making the point that it’s not just changes in law on immigration that influences people’s decisions about whether to immigrate to the US or whether to stay once they have come here, but rather uncertainty plays a very large role. And so the rhetoric that we see coming from elected officials increases uncertainty and the anti-immigrant violence increases uncertainty.

And so what we saw after the Brexit vote, which increased uncertainty, is a 30% reduction in immigration over the next year. And then what I showed was a breathtaking graph that showed the number of nurses from the rest of Europe who registered with the licensing agency in Britain dropping from a thousand a month before the Brexit vote to less than a hundred a month after the Brexit vote.

Alan S. Pierce: And Brexit hasn’t even gone into effect; I mean this was just the fear.

Rick Victor: This is just the fear.

Alan S. Pierce: Okay. So you laid out a case of quant data, easily understandable, or at least if I could understand it it’s easily understandable that would show that if these trends continue that we are going to reach a tipping point where the political system, the traditional ways of bringing the system into balance can no longer effectively do that, and that you postulated that there will be some necessary changes that will come outside of the political system.

So why don’t we run through what you see in your somewhat murky crystal ball as some of the ways that we are going to come up with; we, somebody is going to come up with to deal with this problem.

Rick Victor: These are in the nature of, if I am brainstorming, what kinds of things do I think about? Since one of the secrets to success for the workers’ compensation system over the last hundred years has been having an effective process for adapting to change, I think in terms of if we are going to have to replace it, who should we assign the responsibility to design and operate the system. So we could assign it to employers and we have some experience with that.

Alan S. Pierce: We had that with the opt-out experience.

Rick Victor: That’s right. And the data on that say that those plans were pretty weak on protections for injured workers.

Alan S. Pierce: We don’t have the trade unions and on the other side of the picture, as influential as they were, who is going to be the spokesperson, the voice for labor in this really two-party system of a contract or a bargain between labor and management.

Rick Victor: That’s the critical question and not an easy one, but a really, really important one to figure out. We have some things that we can think of as rough analogies and it’s worth thinking through, whether they provide any possibilities like the carve-outs.

Alan S. Pierce: Just for our audience, we should know what an opt-out. A company just opts out, it has the ability not to be a part of a compulsory workers’ comp system. There is already some history on carve-out, so why don’t you tell us, it’s an interesting concept.

Rick Victor: Well, the carve-outs have been successful and basically an employer or A group of employers who are unionized.

Alan S. Pierce: Yes, it’s usually a collective bargaining issue.

(00:24:59)

Rick Victor: Right, are authorized by state law to create an entity that’s jointly governed by the union and the employers to decide on the issues of that choice of provider and create their own dispute resolution as an alternative to what the state provides.

There are also some examples, Local 3 Electrical Workers in New York, where they also provide higher benefits than used to be under the New York law, but they do it at a lower cost to employers.

Alan S. Pierce: The employee has more control, the bureaucracy; the friction costs are ostensibly reduced.

Rick Victor: That’s right.

Alan S. Pierce: Yeah, okay. And there are different hybrids of this, and I know we have seen carve-outs for certain sectors of employment. You have carved out medical and occupational diseases where there is a dispute somewhere in the Midwest, in the Dakotas or Minnesota somewhere, so these things have existed.

I know we have had carve-outs in Massachusetts at least since 1992, maybe going back to 1986 when we had our two reforms. I never see those cases. That’s very underutilized. I don’t even know — I know Massport for a while was carved out, but I don’t even know who is doing that these days.

Rick Victor: So my thinking about when you see them and when you don’t is not really metaphysics, it’s economics. So when a state workers’ comp system is functioning reasonably effectively, there is no need to carve out an alternative.

Alan S. Pierce: Yeah. And I guess a shout out to the Department of Industrial Accidents here in Massachusetts. They are well-run, decently staffed, responsive, and they are funded by the employers, which is an unusual situation for mechanism of funding a state agency.

Before we wrap up, I know you had mentioned some or a lot of this is going into a book. Why don’t you give us a little preview of what to expect and when?

Rick Victor: Well, the book seeks to answer the question, is there some scenario under which the system gets out of line, out of balance, but the traditional reform process doesn’t work? So it includes some of the things we have talked about today, but it includes a wide range of other forces external to the workers’ comp system that have the potential to raise costs and move the system way out of balance.

Alan S. Pierce: So my question is, is this going to be a love story or a horror story or it’s going to have a happy ending?

Rick Victor: It will do what economists have always done. It will say on one hand and on the other hand.

Alan S. Pierce: Well-put. Rick, would you promise to come back on after the book is out so we can talk about it?

Rick Victor: Certainly

Alan S. Pierce: Thank you very much for joining us today on Workers Comp Matters. As usual, you are very informative, thought-provoking and really a pillar of the community of workers’ comp, no matter whom you represent and what you are interested in this really unique system of social insurance.

Well, at this point I would like to thank our guest, Dr. Richard Victor. I look forward to talking to you again when your book comes out.

And for those of you, please tune in to our next edition of Workers Comp Matters on the Legal Talk Network and go out and make it a day that matters. Thank you.

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Outro: Thanks for listening to Workers Comp Matters today on the Legal Talk Network, hosted by attorney Alan S. Pierce, where we try to make a difference in workers’ comp legal cases for people injured at work. Be sure to listen to other Workers Comp Matters shows on the Legal Talk Network, your only choice for legal talk.

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