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.
Construction’s New World
Get off a plane at Logan Airport and cross the harbor toward Boston and you will see construction cranes, a lot of them.
Grab an Amtrak train from Philadelphia into New York and pulling into Penn Station, you will see more construction cranes, many more of them. The same scene repeats in Denver, Los Angeles, San Francisco and Chicago.
All that steel and cable in the skyline signifies a construction industry that is growing again, after having the rug pulled out from under it in the Great Recession of 2008-2010.
The cranes these days look the same as cranes looked in 2008, but the risk management and insurance environment in construction is anything but the same now.
A variety of factors are now in play that have drastically changed construction risk underwriting, according to Doug Cauti, a senior vice president and chief underwriting officer with Boston-based Liberty Mutual’s construction practice.
Doug Cauti characterizes the current construction market.
Talent and Margins
For one thing, according to Cauti, the available talent pool in construction is nowhere near what it was pre-recession.
“When the economy went into its downturn, a lot of talent left the business and hasn’t returned,” Cauti said.
Cauti said recent conversations with large contractors in Ohio and Pennsylvania confirmed once again that contractors are facing a workforce that is either aging or very inexperienced. That leads to safety management and project quality concerns at just the moment in time that construction is rebounding.
Doug identifies one of the top risk management issues facing construction firms today.
Workers compensation risks in construction, already a problematic area, are seeing an impact from that dynamic.
Contractors are also facing much more competition. In the past, contractors might have bid on 10 jobs to get one, now they have to bid on 50 or 60 jobs to get one. That’s putting pressure on margins.
“There are a lot of contractors out there competing for business,” Cauti said.
“Margins are going up but not at the same rate as the industry’s recovery,” he added.
Financing and Risk Transfer
Another factor impacting the way construction risk is being underwritten is the size of projects and the way they are being financed. Construction’s recovery from the recession might be slow and steady, but the size of projects requiring risk management and insurance has increased substantially.
In 2010, there were 85 projects under contract nationally that were worth $1 billion or more, according to Cauti. One year later, the percentage of projects of that value or higher had grown by 30 percent, and the trend continues.
A lot of those projects are design-build, a relatively new approach to construction that Liberty Mutual has grown comfortable underwriting over the years. But design-build is still an additional complication, blurring the traditional lines of responsibility.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery.”
– Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction
Given the funding demands of these much larger and more valuable projects — many of them badly needed public sector infrastructure improvements — public-private partnerships, otherwise known as P3s, are now coming into vogue as a financing option.
But deciding how risk should be allocated, underwritten and transferred in this new arrangement between contractors, the state, and private partners is a relatively new and untested science.
As a thought leader in the underwriting of the design-build approach – and the more traditional design-bid-build – Cauti said construction experts within Liberty Mutual are growing their knowledge to stay in step.
“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery,” he said.
That means attending relevant industry conferences like the annual IRMI Construction Risk Conference where Liberty Mutual has maintained a significant presence, and engaging in dialogues with contractors and government officials, and maintaining clear and active lines of communications with brokers.
Doug discusses emerging approaches to construction.
Legal and Regulatory
Another change that is creating challenges for construction risk underwriting, according to Cauti, stems from what’s happening in United States courtrooms.
Across the country, how a court interprets coverage can vary widely, especially in the area of construction defect.
“In the past, many jurisdictions viewed construction defect simply as shoddy workmanship and they had to go back and redo it,” Cauti said.
But now, on a state by state basis, courts are ruling that a construction defect is an accident under certain circumstances that may be covered by a contractor’s general liability policy.
In 2014 alone, according to Cauti, Supreme Courts in West Virginia, Connecticut and North Dakota ruled that construction defects can sometimes be considered accidents.
Cauti said doing business with a carrier that pursues contract clarity whenever possible – and that possesses an experienced claims team that can navigate the wide variety of state interpretations – is absolutely essential to the buyer.
Having claim teams not only dedicated to construction but also to construction defect, adds a lot of value to a carrier’s offering.
Doug outlines another top risk management issue facing construction firms in today’s booming market.
Now, as never before, contractors are relying on experienced construction insurance teams to help them address these complexities.
Insurers need to have the engineering expertise to analyze a project, to make sure the right contracting team is in place and to insure that risk exposures are being properly assessed. Another key in a construction insurance team, according to Cauti, is the claims department.
A Strategic Approach
The legal and financing changes that are taking place in the construction market, from a risk transfer standpoint, aren’t going to get ironed out overnight.
Cauti said it could be 10 years until the construction and insurance industries fully understand the complications of public-private partnerships and integrated project delivery, these approaches gain traction, and the state-by-state legal decisions that are causing so much uncertainty can be digested.
In the meantime, an engaged, collaborative approach between carriers, brokers, contractors, and their financing partners will be necessary.
Doug discusses how his area can provide value to project owners and contractors.
For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti 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.