Prepare for Access Issues Now
How will the Affordable Care Act impact workers’ comp? Opinions vary, and so does the research, said Bill Wilt, president of Assured Research, at a session entitled “Healthcare Reform: Strategies You Can Apply Now,” presented at the 2014 National Workers’ Compensation and Disability Management Conference & Expo in Las Vegas.
Wilt presented the session jointly with Denise Algire, director, managed care and disability corporate risk for Safeway Inc.
According to the 2014 Workers Compensation Benchmarking Study published by Rising Medical Solutions, 73 percent of respondents said that the ACA had not yet impacted claims.
However, most believe that an impact will eventually be felt. There is significant disagreement over whether that impact will be positive or negative.
A recent RAND Corp. report suggested that higher rates of insurance take-up would result in less fraud by injured employees without health insurance and less embellishment of real claims. In addition, the report suggested that the ACA focus on creating a generally healthier population overall would positively impact workers’ comp costs across the country.
But, Wilt said, he wasn’t sold on RAND’s results. An Assured Research study of the effect of insurance enrollment on workers’ comp loss ratios showed results all over the board, with evidence of the positive correlation RAND suggested in some states, but with flat results in other states.
Curiously, there was evidence of the opposite effect in many states, with higher insurance take-up correlating to higher loss ratios.
The bottom line, though, said Algire, is that whether you think the ACA is a positive or negative thing, it has changed health care, which unarguably will affect workers’ comp. Employers need to be prepared for the fallout.
Where that will be most keenly felt, she said, will be provider shortages. “Prepare for access issues,” said Algire.
Employers’ should be prepared to cultivate partnerships with outcome-focused providers, she said. And to put an emphasis on front-loading care. That means putting the lion’s share of energy and resources into resolving claims at the primary care level, working to resolve them before they require heavy specialist care, which is where provider shortages will most dramatically impact outcomes.
EEOC Targets Wellness Programs
The Equal Employment Opportunity Commission has filed suit against three employers for violating the Americans with Disabilities Act (ADA) and Genetic Information Nondiscrimination Act (GINA) with their company wellness programs.
Honeywell, Orion Energy Systems and Flambeau Inc. are all facing litigation over penalties and fines levied against employees who refused to participate in company wellness programs.
Employers that offer voluntary programs may ask participating employees disability-related questions and collect results from biometric testing and other medical exams, as long as they keep the information confidential — and the program is truly “voluntary.” The EEOC has determined that if an employee faces any kind of discipline for refusing to participate, such as a fine or becoming responsible for the full cost of their health plan premium, then the program is in essence involuntary.
“The EEOC describes it as ‘you can’t penalize employees,’ but they have not defined what constitutes a penalty,” said Debra Friedman, attorney with Cozen O’Connor’s labor and employment practice group.
On its surface, the EEOC stance appears to collide with the ACA. The federal rule on “Incentives for Nondiscriminatory Wellness Programs in Group Health Plans,” in fact, allows for penalties in certain circumstances. By defining “reward,” for the sake of the ACA, as meaning either incentives or penalties, the law’s language allows a maximum permissible wellness program incentive (or penalty) of up to 30 percent of the cost of health care coverage, jumping up to 50 percent for programs designed to prevent or reduce tobacco use.
However, the ACA is clear that these reward rules apply to health-contingent wellness programs that are tied to a desired outcome. The law contains no direct guidelines for rewards associated with participatory wellness programs, such biometric testing programs where employees are not obligated to take further action to meet a specific standard (such as attain a specific blood-pressure range or BMI level).
Is It Really Voluntary?
In its litigation against Honeywell, the third employer sued by the commission, the EEOC pointed out that employees not participating in the company’s program would have to pay up to $2,500 in “direct surcharges,” as well as lose “up to $1,500 in contributions” to their health savings accounts. While they don’t need to achieve any particular results, employees must submit to biometric testing in order to receive a premium discount.
“The EEOC describes it as ‘you can’t penalize employees,’ but they have not defined what constitutes a penalty,” — Debra Friedman, attorney, Cozen O’Connor’s labor and employment practice group
At Flambeau and Orion Energy, employees who opted out of the wellness program were forced to pay 100 percent of their health insurance premium. The EEOC asserted that these penalties were so extreme and had such “dire consequences” that, in practice, they rendered the wellness programs involuntary.
In programs and required medical exams that are involuntary, the ADA states that employers cannot ask disability related or other personal medical questions that are not “job-related and consistent with business necessity.” There are some exceptions to this rule, but none that apply to the three employers facing suits.
On Nov. 3rd, however, the U.S. District Court for the District of Minnesota denied the EEOC’s request for a temporary restraining order and preliminary injunction against Honeywell, stating that the company’s program aims to raise awareness among its employees about their health indicators, but does not break any laws because it doesn’t require any behavior changes. The court did note, though, that the case raises interesting questions as to how the ACA, ADA and GINA will work together.
Wellness and Workers’ Comp
The Affordable Care Act requires employers to make wellness a priority in the workplace, and employers have much to gain by doing so. While there’s little research that shows a direct effect of wellness programs on workers’ comp costs, more information is coming out that supports how reducing certain risk factors can shorten claim duration and minimize claim costs. Modifiable risk factors like obesity, COPD and depression can lengthen injury recovery time.
“We see a trend in employers implementing wellness programs because they are interested in the health, welfare and longevity of their workforce,” said Bob Stoner, SVP of operations for BTE Workforce Solutions. “Healthier employees are more productive employees.”
While wellness programs typically fall in the realm of employee health benefits, administrators of workers’ comp programs should take an equal interest and work internally to coordinate their efforts.
“If you’re 50 years old and depressed, your workers’ comp claim is going to cost more than someone who is 50 but has a great support network and positive outlook,” said Karen Curran, director of health risk management at Pinnacol Assurance.
“Employers need to understand this is an evolving area, and there’s a lack of guidance from the EEOC, so we need to wait and see whether EEOC and courts will find wellness programs that are compliant with the ACA regulations to be compliant with ADA and GINA,” Friedman said. “Employers should make sure there is no discipline against an employee for refusing to participate, and I would recommend not shifting full costs of premium to employee. The safest route is to stick to participatory programs.”
Participatory programs would include things like no-cost health seminars and positive rewards for submitting to a health risk assessments, said Terri Rhodes, executive director of the Disability Management Employer Coalition. The ACA also allows for biometric screenings to be considered participatory as long as employees are not penalized based on the results or required to take further action to change the results.
Health-contingent or outcome-based programs, on the other hand, attach significant rewards or penalties to meeting specific goals, such as in a smoking-cessation or weight loss target, or anything measured around biometric standards, such as blood pressure or cholesterol. These types of programs run a higher risk of running afoul of the ADA and GINA.
“Employers need to be very careful about collection and handling of any family medical history,” Stoner said. “Employee information must be provided voluntarily and with clear written consent, and kept separate and confidential from personnel records. Wellness programs that incorporate financial penalties or incentives must be carefully crafted in order to be compliant.”
Culture Is Key
Curran said the best way for employers to avoid running afoul of the ADA and GINA is to retool their workplace safety culture to make unhealthy behaviors more difficult.
For example, one of her clients had an enclosed sunroom on their property where workers were permitted to smoke. The room was equipped with picnic tables, comfy couches, and plenty of windows and natural light.
“They were making it an enjoyable environment and making it easy for people to smoke,” she said. “That makes it hard for people to quit.” She advised that the smoking area be moved from the sunroom to an outdoor area underneath an umbrella, with no tables or chairs. That makes smoking less enjoyable and quitting a little bit easier to commit to. It also doesn’t violate any laws because the company was not taking away any employee’s right to smoke nor asking them to join a cessation program, but simply asking them to smoke in a different area of the campus.
“It’s not so much about the program as it is about engaging your workforce,” Rhodes said. “I think that’s something employers struggle with, especially with a multi-generational workforce.”
Curran also advised sprucing up stairways with colorful paint and adequate lighting and slowing down elevators to encourage taking the stairs. Adding healthy snacks to vending machines and raising the price of candy bars slightly to offset the expense is another way to “make the healthy choice the easy choice.”
“Look at what you can do to create a culture of wellness, and the ADA doesn’t even come into play,” she said.
Passion for the Prize
In his 1990 book, The Prize: The Epic Quest for Oil, Money and Power, Pulitzer Prize winning author Daniel Yergin documented the passion that drove oil exploration from the first oil well sunk in Titusville, Penn. by Col. Edwin Drake in 1859, to the multinational crusades that enriched Saudi Arabia 100 years later.
Even with the recent decline in crude oil prices, the quest for oil and its sister substance, natural gas, is as fevered now as it was in 1859.
While lower product prices are causing some upstream oil and gas companies to cut back on exploration and production, they create opportunities for others. In fact, for many midstream oil and gas companies, lower prices create an opportunity to buy low, store product, and then sell high when the crude and gas markets rebound.
The current record supply of domestic crude oil and gas largely results from horizontal drilling and hydraulic fracturing methods, which make it practical to extract product in formerly played-out or untapped formations, from the Panhandle to the Bakken.
But these technologies — and the current market they helped create — require underwriters that are as passionate, committed and knowledgeable about energy risk as the oil and gas explorers they insure.
Liability fears and incessant press coverage — from the Denton fracking ban to the Heckmann verdict — may cause some underwriters to regard fracking and horizontal drilling with a suppressed appetite. Other carriers, keen to generate premium revenue despite their limited industry knowledge, may try to buy their way into this high-stakes game with soft pricing.
For Matt Waters, the chief underwriting officer of Liberty Mutual Commercial Insurance Specialty – Energy, this is the time to employ a deep underwriting expertise to embrace the current energy market and extraction methods responsibly and profitably.
“In the oil and gas business right now, you have to have risk solutions for the new market, fracking and horizontal drilling, and it can’t be avoidance,” Waters said.
Matt Waters, chief underwriting officer of Liberty Mutual Commercial Insurance Specialty – Energy, reviews some risk management best practices for fracking and horizontal drilling.
Waters’ group underwrites upstream energy risks — those involved in all phases of onshore exploration and production of crude oil and natural gas from wells sunk into the earth — and midstream energy risks, those that involve the distribution or transportation of oil and gas to processing plants, refineries and consumers.
Risk in Motion
Seven to eight years ago, the technologies to horizontally drill and use fluids to fracture shale formations were barely in play. Now they are well established and have changed the domestic energy market, and consequently risk management for energy companies.
One of those changes is in the area of commercial auto and related coverages.
Fracking and horizontal drilling have dramatically altered oil and gas production, significantly increasing the number of vehicle trips to production and exploration sites. The new technologies require vehicles move water for drilling fluids and fracking, remove these fluids once they are used, bring hundreds of tons of chemicals and proppants, and transport all the specialty equipment required for these extraction methods.
The increase in vehicle use comes at a time when professional drivers, especially those with energy skills, are in short supply. The unfortunate result is more accidents.
“In the oil and gas business right now, you have to have risk solutions for the new market, fracking and horizontal drilling, and it can’t be avoidance.”
— Matt Waters, chief underwriting officer, Liberty Mutual Commercial Insurance Specialty – Energy
For example, in Pennsylvania, home to the gas-rich Marcellus Shale formation, overall traffic fatalities across the state are down 19 percent, according to a recent analysis by the Associated Press. But in those Pennsylvania counties where natural gas and oil is being sought, the frequency of traffic fatalities is up 4 percent.
Increasing traffic volume and accidents is also driving frequency trends in workers compensation and general liability.
In the assessment and transfer of upstream and midstream energy risks, however, there simply isn’t enough claims history in the Marcellus formation in Pennsylvania or the Bakken formation in North Dakota for underwriters to rely on data to price environmental, general and third-party liability risks.
That’s where Liberty Mutual’s commitment, experience and ability to innovate come in. Liberty Mutual was the first carrier to put together a hydraulic fracking risk assessment that gives companies using this extraction method a blueprint to help protect against litigation down the road.
Liberty Mutual insures both lease operators and the contractors essential to extracting hydrocarbons. As in many underwriting areas, the name of the game is clarity around what the risk is, and who owns it.
When considering fracking contractors, Waters and his team work to make sure that any “down hole” risks, be that potential seismic activity, or the migration of methane into water tables, is born by the lease holder.
For the lease holders, Waters and his team of specialty underwriters recommend their clients hold both “sudden and accidental” pollution coverage — to protect against quick and clear accidental spills — and a stand-alone pollution policy, which covers more gradual exposure that unfolds over a much longer period of time, such as methane leaking into drinking water supplies.
Those are two different distinct coverages, both of which a lease holder needs.
Matt Waters discusses the need for stand-alone environmental coverage.
The Energy Cycle
Domestic oil and gas production has expanded so drastically in the past five years that the United States could now become a significant energy exporter. Billions of dollars are being invested to build pipelines, liquid natural gas processing plants and export terminals along our coasts.
While managing risk for energy companies requires deep expertise, developing insurance programs for pipeline and other energy-related construction projects demands even more experience. Such programs must manage and mitigate both construction and operation risks.
Matt Waters discusses future growth for midstream oil and gas companies.
In the short-term, domestic gas and oil production is being curtailed some as fuel prices have recently plummeted due to oversupply. In the long-term, those domestic prices are likely to go back up again, particularly if legislation allows the fuel harvested in the United States to be exported to energy deficient Europe.
Waters and his underwriting team are in this energy game for the long haul — with some customers being with the operation for more than 25 years — and have industry-leading tools to play in it.
Beyond Liberty Mutual’s hydraulic fracturing risk assessment sheet, Waters’ area created a commercial driver scorecard to help its midstream and upstream clients select and manage drivers, which are in such great demand in the industry. The safety and skill of those drivers play a big part in preventing commercial auto claims, Waters said.
Liberty Mutual’s commitment to the energy market is also seen in Waters sending every member of his underwriting team to the petroleum engineering program at the University of Texas and hiring underwriters that are passionate about this industry.
Matt Waters explains how his area can add value to oil and gas companies and their insurance brokers and agents.
For Waters, politics and the trends of the moment have little place in his long-term thinking.
“We’re committed to this business and to deeply understanding how to best manage its risks, and we have been for a long time,” Waters said.
And that holds true for the latest extraction technologies.
“We’ve had success writing fracking contractors and horizontal drillers, helping them better manage the total cost of risk,” Waters said.
To learn more about how Liberty Mutual Insurance can meet your upstream and midstream energy coverage needs, contact your broker, or Matt Waters at email@example.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.