National Employers Push for Comp Options
National employers already benefiting by opting out of Texas’ workers’ compensation system are now pushing for “free market alternatives” to traditional state systems across the nation.
They launched a new organization called the Assocation for Responsible Alternatives to Workers’ Compensation. ARAWC plans to lobby state legislators to allow employers to develop new options for delivering medical and wage replacement benefits to injured workers.
Its members include nationwide companies such as Wal-Mart Stores Inc., Lowe’s Companies Inc. and Sedgwick Claims Management Services Inc.
The employers are frustrated with being forced into “entrenched” workers’ comp systems that prevent them from adopting practices that could benefit them and their employees, said Richard Evans, executive director of Austin-based ARAWC.
“Many employers in Texas have experienced first-hand the financial savings and positive employee benefits of an alternative occupational injury benefit plan. Companies need flexibility in other states.”– Janine Kral, ARAWC president and VP of risk management at retailer Nordstrom Inc.
Traditional state systems, influenced by various interests, make it impossible to adopt medical delivery practices that can lower costs and speed employee return to work, he elaborated. State administrative burdens, for example, discourage the best doctors from treating workers’ comp cases.
“Workers’ comp is slow to change,” Evans said. “There are a lot of stakeholders involved and it’s hard to make those changes.”
Therefore, it is better to push for alternative options than to “try to come in and tinker around the edges with workers’ comp,” Evans said.
Members of ARAWC, pronounced a-rock, have succeeded in controlling costs and improving claims outcomes by opting out of Texas’ workers’ comp system.
Unlike all other states which mandate employer participation in their workers’ comp systems, Texas has long allowed employers, called “non-subscribers,” to forego participation.
Many Texas non-subscribers provide wage replacement coverage and medical benefits delivered through health plans regulated by the federal Employee Retirement Income Security Act of 1974, although they are not required to.
“Many employers in Texas have experienced first-hand the financial savings and positive employee benefits of an alternative occupational injury benefit plan. Companies need flexibility in other states to provide the best solution for their employees, and ARAWC’s mission is to help expand those opportunities,” Janine Kral, ARAWC president and VP of risk management at retailer Nordstrom Inc. said in a statement.
ARAWC member companies include employers that pushed for Oklahoma’s adoption of “option” legislation in 2013. Employers there can now provide an employee injury benefit plan as an alternative to meeting their obligation to care for injured employees through the state’s traditional arrangements.
“Some of the employers that were active in Oklahoma decided that we wanted to have a more coordinated effort as we go forward into other states to open up those states to allow employer options,” Evans said.
Texas and Oklahoma’s alternative options are significantly different from each other. While Oklahoma requires employers to provide injured workers with benefits equal to those provided under the state’s traditional system, Texas does not. But Texas employers can be sued by an injured worker.
Now ARAWC plans to assess the political landscape and workers’ comp costs in other states to identify which ones may be ripe for adopting their own alternative structures. Tennessee is said to be on a short list.
Evans said he expects other states to adopt alternatives that look more like Oklahoma’s model rather than follow Texas, although “we are not trying to come in with a one size fits all” for all states, Evans said.
Nor will ARAWC attempt to dismantle existing state workers’ comp systems.
“Workers’ comp works well for some employers and some are going to want to stay in that,” he said.
ARAWC’s effort is likely to face opposition, however. An ARAWC fact sheet states that insurers “typically resist an Option because the competition tends to drive down premiums.”
The creativity displayed by people working in our industry always impresses me. I commonly get a roll of the eyes when non-industry people hear I spend my days reporting on workers’ compensation. “What can you possibly find to write about?” is their most common question. I brush them off, telling them about the sillier stories that get reported on in workers’ comp. Like the one about the Australian woman who sought benefits for an injury sustained while engaged in sexual activity in a hotel room during a work trip.
A glass light parted from a wall above her, injuring her. It takes a creative mind to suffer an injury while enjoying an aggressive romp in a hotel room and then think, “This calls for workers’ comp benefits.”
People also like to hear about crime and controversy, so I tell them stories like the one about a fast food worker denied workers’ comp benefits after he was shot at work. The young man broke his company’s policy against confronting criminals when he rushed to help a woman attacked by a man in the restaurant.
It also takes a creative claimant attorney to jockey for negotiating leverage by alerting the media about how a giant fast food corporation denied workers’ comp benefits to his heroic client for an injury suffered while rescuing a customer.
Those types of stories attract a lot of media attention. But over the years I have particularly admired the creative strategies applied by risk managers, sometimes to gain their own negotiating leverage.
Like one risk manager who years ago shared his strategy with me for final renewal negotiations with his property insurance partner of many years.
When the insurer visited, the risk manager would ask when their return flight was. The risk manager kept his guest busy with lunch and other conversations, avoiding the final renewal discussions until nearer the time of the insurer’s departing flight.
The insurer wanted to close, but with one eye on the clock he was more likely to agree to give a bit more on terms the policyholder desired.
Another risk manager told me how he annually ranked defense attorney firms he hired. His formal ranking process included billing practices and scoring how promptly attorneys returned phone calls.
The risk manager shared his scoring results with all the attorneys. None wanted to rank below the other competing law firms. The creative measure spurred competition and hopefully improved service.
Creativity can also have a compassionate side. I heard of such a case recently while attending the Disability Management Employer Coalition’s annual conference.
Janet Barfoot, leave benefit analyst for CenturyLink, discussed accommodating an injured, yet motivated worker. The network technician didn’t want to give up his paycheck for a smaller short-term disability benefit.
But medical restrictions prevented him from lifting 20 pounds. So CenturyLink worked with his union and arranged a temporary job swap with a co-worker. For a return to his regular duties, co-workers agreed to pitch in the few times he would need a 67-pound ladder lifted.
The creative job accommodation saved the company claim dollars and overtime hours. It also strengthened relations between employer and employees, who witnessed the company’s efforts to help a peer.
That’s the kind of creativity that impresses me.
TPAs Take Wait-and-See View of Claims Volumes
Some claims management organizations are experiencing a slight uptick in workers’ compensation claims volume following labor market reports detailing gradual gains in hiring.
But claims volume growth isn’t likely to keep in lockstep with employment expansion, pushing third party administrators (TPAs) to look for other revenue opportunities.
Employers’ ongoing safety improvements and manufacturing processes relying more on technology and mechanization than physical labor mean continued decreases in claims frequency.
Manufacturing companies, for example, have seen successive months of job growth while new jobs are seen as an indicator of potential claims because new, inexperienced employees typically account for a significant portion of injury frequency.
But there hasn’t been a comparable rise in claims filed by injured manufacturing workers, said Neil J. Lentine, chief operating officer at Broadspire, a third party administrator.
“Even though you might see a slight increase in jobs … the safety measures companies are taking, as well as the way they do business from a technology prospective versus the [use of] old machinery, you see less and less of the claims,” Lentine said. “We have several manufacturing clients where frequency continues to decline even when the job rates are going up.”
Nationwide, the frequency of lost-time claims decreased 2 percent in 2013, following a 6.1 percent decline in 2012, according to an August 2014 “Gauging the Economy” newsletter from NCCI Holdings Inc.
Overall, however, TPA executives are seeing some gains in claims volume.
In an August earnings call for the second quarter of 2014, Crawford & Co. reported that hiring increases have led to clients referring more workers’ comp claims. Crawford is the parent of Broadspire.
“We have seen a slight increase in claims in existing business because of the economy,” Lentine added.
From February through July, U.S. employers added about 240,000 jobs per month. Total nonfarm payroll growth fell in August, however, dropping to 142,000 new jobs created for the month, according to an employment situation report released September 5 by the U.S. Bureau of Labor Statistics.
Despite the slowing growth estimated for August, it marked the 54th consecutive month of private sector jobs increases.
The U.S. Department of Labor also says that businesses have added more than 10 million jobs over the past four and one half years. But TPAs say their intake of claims is nowhere near pre-recession levels.
“They are not up to pre-recession levels by any stretch,” said Joseph McLaughlin, senior VP sales and marketing at TRISTAR Insurance Group.
As expected, though, claim volume has grown along with payrolls, said Michael Hessling, chief client officer and executive VP of account management at TPA Gallagher Bassett Services.
But it is well established that workers’ comp claims frequency has experienced a long-term decline and TPA clients tend to be particularly sophisticated adopters of loss control practices.
“Yes claims volumes are up, but not up in line with the economy because our clients are very effective at further reducing frequency,” Hessling said.
Meanwhile, an increased use of products such as nurse triage programs is driving a downward shift in the category and severity of claims TPAs receive, Hessling added. Triage nurses typically determine whether a worker injury is serious enough to require immediate medical attention or is slight enough that self care is all that is needed.
“All of those things collectively lead to pressure on frequency reduction while at the same time employment growth is leading to an increase in overall opportunities,” Hessling said. “The net [change] is claim volume is up, but it is up stronger than the past three to four years. It is not by any means a step change.”
Overall declining frequency means TPAs, more so than insurers, cannot count on claims volume, but must look for other opportunities, such as providing clients with managed care services, Lentine said.
“It does have an impact on us so we have to think of ways to grow our market share,” he said.
Meanwhile, TPA executives expect better days are ahead.
Claims tend to lag employment growth by three to eighteen months, said Glenn Backus, president at Alternative Service Concepts.
“We monitor [claim] intake closely and haven’t seen a noticeable increase yet,” the TPA’s president said. “However, we remain cautiously optimistic, knowing that the economy [including employment] is still on somewhat shaky ground.”