In an Out Front Ideas with Kimberly and Mark webinar broadcast on January 12, 2016, we discussed our thoughts around the issues that the workers compensation industry should have on their radar for 2016.
What follows is a summary of 20 issues that we expect to impact our industry this year.
1. Election Cycle
Everyone knows that this is a presidential election year. But election time also means governor and insurance commissioner seats are available. State insurance commissioners are elected in 11 states and appointed in the other 39. In the upcoming election, there are 12 gubernatorial seats and 5 insurance commissioner positions to be decided. The workers compensation industry needs to be paying attention to these elections because the insurance commissioners can have significant influence over procedures, policies, and enforcement in their respective states.
2. Viability of Workers Compensation
It is important for all of us to consider the ongoing viability of workers compensation. Is the grand bargain still doing what it was established to do? There is a growing debate around the gaps and shortcomings of workers compensation. Our industry needs to engage in a critical analysis of these issues. Many of those issues are highlighted later in this article.
In October 2015, 10 high-ranking Democrats on key Senate and House committees sent a letter to the Department of Labor asking it to conduct a critical review of state workers compensation systems. Some are concerned that this is a sign we could see federal government involvement in state workers compensation systems.
In some ways, the federal government is already involved in workers compensation. For instance, the Occupational Safety and Health Administration (OSHA) has a tremendous impact on workers compensation. In addition, Medicare Secondary Payer Compliance is another example of federal law impacting the system.
Recent criticisms of workers compensation have focused on the vast benefit differences between states. There is also growing concern that workers who are permanently disabled are pushed off workers compensation and onto Social Security disability. With Social Security having solvency concern, lawmakers will be receptive to discussions on how to keep workers compensation from shifting their long-term claims to the federal government.
This is a substantial issue to watch in the coming years, and there is a significant chance that the federal government will suggest minimum benefit recommendations to the states at some point in time. This could especially impact states that have hard caps on the total amount of indemnity benefits that an injured worker can receive.
4. Affordable Care Act
The Patient Protection and Affordable Care Act (PPACA) will continue to be a subject of discussion in 2016. The implementation date of the high-cost, employer-sponsored health plans tax, dubbed the "Cadillac tax," was recently delayed from 2018 to 2020. It imposes an excise tax of 40 percent on health plans whose value is more than $10,200 for individual coverage and $27,500 for a family. Regardless of the delay, employer-sponsored benefit plans have evolved over the past 5 years in preparation to avoid the additional tax. The formerly rich benefit plans were dropped in an effort to provide benefit plans within the Act's requirements and often replaced by higher deducible plans with reduced benefits.
The National Council on Compensation Insurance (NCCI) and Workers Compensation Research Institute (WCRI) have both conducted studies on how the PPACA has impacted workers compensation. Results have not conclusively tied treatment delays or actual cost shifting to workers compensation. We believe ongoing studies by these organizations and others are important to evaluate the impact of the Act on workers compensation.
Other issues that should be monitored include consolidation of health systems, providers, and insurers. In 2015, there was over $700 billion dollars' worth of consolidation in the healthcare marketplace. This is driven, in part, by the PPACA because scale and size assist providers with efficiency, purchasing power, and the need to provide a continuum of care.
Another issue where the Act could impact workers compensation is changing reimbursement models. Medicare is looking to shift into a value-based reimbursement model, and many state fee schedules are based on Medicare rates.
Although not specifically related to the PPACA, a healthcare topic to keep an eye on is drug pricing. Drug pricing will continue to be a topic among the media, pharmacy benefit managers, employer benefit managers, health plan experts, and politicians. Prescription drug pricing increased over 10 percent in 2015, and this trend is expected to continue. This has an impact on the cost of workers compensation claims.
5. Holes in Workers Compensation
What many people do not realize is that workers compensation protections are not available to all workers within the United States. In 14 states, smaller employers with 5 employees or fewer do not have to secure coverage. In 17 states, there is no legal requirement for coverage of agricultural workers. Half of the states do not require coverage for domestic workers, and 5 states specifically exclude coverage for these employees.
There are also states that create exceptions for certain types of workers, such as state employees in Alabama. Finally, as we have seen from court cases around the country, occupational diseases that take several years to develop are often barred by the statute of limitations, leaving those workers with no recourse for benefits.
These holes are yet one more thing that critics point to when talking about the inadequacy of workers compensation. The occupational disease issue is particularly concerning because it is very easy to question the fairness of barring a claim under the statute of limitations and, at the same time, denying the injured worker the ability to pursue a claim in civil court under the exclusive remedy protections of workers compensation. This is another area where we will not be surprised to see the federal government give recommendations.
6. Blurred Lines between Workers Compensation and Group Health
The employee health model is evolving. Employers are finding the need to provide a consistent health care experience for their workforce and plan members. They would like to find a model that provides both quality care and consistency for their employees, regardless of whether the need for treatment arises from a work injury or at home. Because a healthy workforce is a productive workforce, employers also feel that there is a need to tie health and productivity together.
We will continue to see health systems build accountable care organizations (ACOs) and enter the health plan, insurance, and risk-bearing arena with the goal of directly selling to and partnering with employers. ACOs are an attractive model for employers supporting a healthier workforce by extending the culture of health philosophy from work to the home for their employees and their families.
Mental health is a top driver for absence across employers and is not simply a health cost concern. Mental health care should be as important as physical health care and is currently a focus of population health and employer programs. Employers are looking for healthcare models, which consider the person as a whole and offer consistent, engaging behavioral health and wellbeing programs for their workforce.
Workers compensation key stake holders should be a part of the evolving health model discussions and early stage planning so not to be left in the dark as health models change.
7. Options to Workers Compensation
We all know that Texas has a unique system that allows employers to completely opt out of workers compensation benefits. The term "opt out" refers only to the Texas system. Employers in Oklahoma have an option that allows them to develop a private benefit plan that replaces state-mandated workers compensation. It is this concept of an option that is looking to spread to other states. Bills on this issue will be reintroduced in Tennessee and South Carolina this year, and other states have begun preliminary discussions.
Some employers feel that they can provide better benefits to their injured workers at a lower cost with these option programs. Others are concerned that these programs lack the controls and oversight of state workers compensation. One thing is certain—this issue is not going away any time soon. Perhaps these discussions around options to workers compensation can lead to discussions about workers compensation reform, including employer medical control, increasing thresholds of compensability, and reducing the bureaucracy of the workers comp system.
8. Evolving Claims Model
There are significant discussions around the evolving claims model. The industry realizes that we need to focus more on the injured worker as a consumer. The model needs to focus more on advocacy, but what does this really mean? Is this a person who assists the injured worker in understanding the claims process, or is there a need to change the culture of our industry to be less adversarial?
Other parts of the evolving model involve who actually touches the claim. Are there elements that could be automated? Should there be more specialization with different individuals performing different tasks instead of the current model where the claims adjuster is a generalist performing multiple tasks across multiple jurisdictions?
The claim handling model also needs to adapt to new technology and the way with which different generations want to be communicated. Some injured workers prefer text instead of email or phone calls. Some like to be able to access claims information in an app on their mobile device 24/7. The model must evolve to take full advantage of new technology and communication methods.
9. Florida Supreme Court
Over the last 2 years, four cases challenging the constitutionality of various aspects of the Florida workers compensation statutes have made it to the state's supreme court. The first of those cases, Padgett, ended in late December when the Florida Supreme Court declined review. That case had been thrown out on procedural grounds during the appeal process, so the Florida Court of Appeals and Supreme Court never addressed the underlying constitutional challenge.
There are three cases still to be decided.
Westphal, which deals with caps on temporary disability benefits.
Castellanos, which addresses limitations on attorney fees.
Stahl, which focuses on post-"maximum medical improvement" (MMI) medical copayments and the elimination of permanent partial disability payments.
The expectation is that the Florida Supreme Court will address all of these cases in 2016, but nobody knows when that will occur.
Workers compensation is one of the most highly regulated lines of insurance, and regulators are increasingly aggressive in pursuing fines and penalties. Every form filed and every payment transaction is an opportunity for a penalty. Electronic data interchange (EDI) allows regulators to automate the fines and penalties. Some states perform retrospective audits on activity 5–10 years in the past. The independent medical review (IMR) process in California adds administrative cost to claims without necessarily improving outcomes, and states with self-imposed penalties may be driving up the cost of doing business beyond the benefit of the penalty payment. Lobbying is becoming an increasingly important area for payers and service providers to consider.
The significant costs associated with the bureaucracy of workers compensation regulations are not improving the outcomes on claims. Most of the money collected from the fines and penalties is paid to the states. The programs may cover the operating costs of state workers compensation division and not be paid to the injured worker or medical provider.
11. Regulatory Change
There are four states in particular that we should be keeping an eye on in terms of potential regulatory reforms in 2016.
Employers in New York are continuing to push for additional workers compensation reforms to reduce their costs because the savings projected with the last round of reforms never fully materialized. Whether or not there is enough momentum to get a bill though this year remains to be seen, but the efforts are there.
In Florida, this is going to depend on what the Florida Supreme Court does with the cases mentioned earlier. If any of those cases punch holes in the constitutionality of their workers compensation law, then the legislature is going to need to address this. Again, this is a waiting game.
Illinois Governor Bruce Rauner has made it a priority to enact workers compensation reforms to reduce employer costs, but his efforts have been blocked by the state legislature, and this has led to a budget stalemate in the state. There has been much political back-and-forth on this budget and the workers compensation reforms. It remains to be seen if the governor has the political muscle to get this passed.
Ever since Governor Arnold Schwarzenegger's workers compensation reforms in 2004 and continuing with SB 863 passed by Governor Edmund G. Brown Jr., the California legislature has been trying to undermine these workers compensation reforms. Every year, multiple bills are passed by the legislature, and every year, both Governor Schwarzenegger and Governor Brown have vetoed those bills. Governor Brown is committed to preserving his workers compensation reforms, and there are 3 years left on his term. Once he is gone, there is concern about what could happen with workers compensation in California. But for now, significant change is not expected.
12. Talent Acquisition
Talent acquisition and retention is probably the biggest issue facing the entire insurance industry. Consider the following.
25 percent of insurance industry workforce will retire by 2018 (McKinsey).
There are 2.3 million workers in the insurance industry. Over 1 million will retire in the next 10 years and 400,000 positions will be left open by 2020 (Deloitte and Jackson Group).
Workers over the age of 45 represent 48 percent of the insurance workforce.
Are we doing enough with colleges to show the career opportunities in the insurance industry? Although more colleges and universities are offering risk management programs, the reality is that there are very few of these programs nationwide. Our industry needs to support these programs with both grants and internship opportunities.
In workers compensation, we need to be looking at the role of the examiner. Are there tasks that we could automate and reduce workload need? Millennials say they want to work with purpose. The role of the claims adjuster is to assist injured workers in their recovery. Could we be doing more to highlight the positive aspects of the claims adjuster role to make it more attractive to millennials?
We also need to be looking at ways to be flexible with work schedules and whether someone is tied to the home office or able to work from a remote location. Finally, we need to continue to focus on promoting diversity and inclusion within our workforce.
13. Market Conditions
You cannot forecast the upcoming year for the workers compensation industry without talking about rates. Recently, for the first time in years, the Fed increased interest rates. This is good news, but the change is still insignificant and will not have a material impact on the workers comp industry. Because investment opportunities are limited for insurers, they continue to be very diligent with their underwriting.
What does this mean for rates? Right now, the market is relatively stable. Accounts with good loss histories could see steady to slightly decreased rates, while accounts with poor loss histories will likely see slight increases. Overall, significant rate changes across the nation are not expected in the coming year.
14. Predictive Analytics
Predictive analytics have been a buzz word in our industry for a number of years. Most data models identify at-risk claims, which may benefit from additional intervention in terms of nurse case management or a more skilled adjuster. The goal of the intervention(s) is to change the trajectory of the claim—to do something different than in similar prior claims, so the result is improved over the past experience.
Although most payers reflect having predictive analytics and a variety of models available, there are limited published results on the outcome and effectiveness. Watch in 2016 to see if organizations begin sharing outcomes as a way to market their business or provide industry thought leadership on what is working and should be considered to drive success.
There is a need to evolve predictive analytics and big data models so that some human tasks are automated. Instead of just identifying cases where intervention is necessary, we should also identify claims where minimal intervention is needed. This approach frees up resources and allows attention on claims, which will benefit from the touch. Future claims models will benefit from analytics using learning models similar to IBM Watson-type smart analytics.
OSHA continues to be a challenge for employers. Going into 2016, OSHA has increased reporting and recordkeeping requirements. It is increasing its focus on certain industries, including health care, and employers are seeing a significant increase in fines. This is an area that is constantly evolving.
16. Utilization Review
There is industry buzz and sidebar conversations around utilization review (UR) and the current approach deployed by employers, payers, and service providers. Physicians are asking more than ever before how they can help streamline treatment requests, obtain decision outcomes electronically and more quickly, and provide timely appropriate care for patients.
Utilization review should ensure that injured workers receive appropriate care within the right setting and for the correct duration. But what is the right UR model? Should all treatment be subject to UR or select treatment requests? Is UR a process strictly addressing the request for treatment and medical documentation submitted against guidelines of care or collaborative with adjusters, providers, and the injured workers? Are denials of care driving up litigation unnecessarily? Do UR referral triggers change if the physician providing care is part of a high-performance network or known to be a top performing physician? These are questions being raised by industry veterans and newcomers alike and are likely worthy of a review and further dialogue.
In the consumer-driven health world that we find ourselves in, there is greater interest from injured workers to understand treatment options and outcomes. If not a part of UR, is your case management or claim model providing medical treatment option education, inclusive of outcomes awareness? Transparency is becoming increasingly important to consumers.
17. Exclusive Remedy
Plaintiff attorneys are always trying to find ways around the exclusive remedy protections of workers compensation, and these efforts are becoming increasingly successful. In early January 2016, the California District Court of Appeals allowed an injured worker to pursue a civil claim against a utilization review provider because the provider failed to warn them about the potential risks of medication withdrawal.
More and more, judges are allowing such litigation to survive a motion to dismiss on summary judgement due to workers compensation exclusive remedy protections. This creates enormous costs for employers and insurers, who then must spend hundreds of thousands of dollars or more defending such lawsuits and face the risk of a jury award that could be worth millions. In addition, an employers liability award based on the "intentional actions" of the employer may have issues with insurance coverage. The entire industry should be paying close attention to this area of increased litigation around exclusive remedy.
The International Classification of Diseases, Revision 10 (ICD-10), medical classification came along last year with a lot of hype and a significant amount of work effort to update systems and train teams. There was concern that the new diagnosis codes would result in slowed claims processes and treatment decisions. Thus far, workers compensation key stakeholders report little to no impact from the change. This may be due to the fact that states did not mandate the use of ICD-10 for workers compensation, and most organizations continue to accept ICD-9. Bill review receipt to pay timeframes have not lengthened, and e-billing rejections did not increase, which were two areas to watch after the ICD-10 went live.
In 2019, Medicare plans to roll out an incentive-based reimbursement model tied to patient outcomes (Medicare Access and CHIP Reauthorization Act of 2015 MACRA)). The American Medical Association believes this will be a significant reimbursement change for physicians. Changes to Medicare reimbursement could impact workers compensation because some state fee schedules are Medicare based.
History has proven Medicare does not always follow through with what it expects to do in terms of changing reimbursement models, but the MACRA implementation is an issue worthy of monitoring.
Thus far, New Mexico has been the only state that is allowing medical marijuana for treatment under workers compensation. But as the use of medical marijuana spreads, it is inevitable that we will see other states take on this issue. The answer is simple—if states put something in their statutes barring medical marijuana under workers compensation, then that solves the problems. Some medical marijuana states have already indicated that insurance is not responsible for covering medical marijuana. State legislators and regulators can stop this before it becomes a legitimate problem.
The bigger issue is employment practice concerns. Many expect the federal government to reclassify marijuana as a Schedule 2 drug, possibly by the end of this current administration. Once that happens, it will no longer be an "illegal" drug. Employers are going to need to adapt and drug test for impairment rather than just testing for the presence of the drug. Standards are going to need to be developed on what constitutes "impairment" with marijuana. The science needs to catch up with the realities of this new normal when it comes to marijuana in the United States.
20. On-Demand Economy
The on-demand economy is creating new concerns about what constitutes an employee/employer relationship. Is an Uber driver an employee of Uber, or is he or she an independent contractor? What about a repair person you hire through Angie's List?
While the on-demand economy is a newer dynamic, determining what constitutes an independent contractor versus an employee has been a challenge for the workers compensation industry for many years. In July 2015, the Department of Labor (DOL) issued an interpretive memorandum indicating that the DOL feels "most workers classified as independent contractors are employees under the Fair Labor Standards Act's broad definitions."
So, perhaps the issue to watch here is not so much the on-demand economy, but instead whether we are going to see the DOL push for fewer and fewer workers to be classified as independent contractors. This could have a significant impact on many industries, as well as significantly change the business model of services like Uber and Lyft.
The authors conduct webinars on these and other issues, entitled "Out Front Ideas with Kimberly and Mark." See their website, Out Front Ideas, for more information and a schedule of webinars.
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