ARAWC: A New Force for Change
On February 1, 2014, the state of Oklahoma enacted new workers’ compensation legislation in SB 1062, which allows any employer to exit, or opt-out of, the state’s statutory workers’ compensation system. While not exactly like what’s known as “non-subscription” in Texas, this new statute is a significant move forward in giving employers more options in how they respond to and finance employee injuries and related benefits with a key focus on ensuring injured employees are treated respectfully and compensated fairly in the aftermath of an on-the-job injury.
Until now, only Texas allowed any private sector employer to opt-out of its statutory workers’ compensation system. Just as there are significant differences between what Oklahoma has done and what has been in place in Texas for over 100 years, the passage of SB 1062 demonstrates that there are state-specific opportunities to improve the financing of and response to employee injuries in many other states.
Enter the Association for Responsible Alternatives to Worker’s Compensation, or ARAWC (pronounced “A-ROC”). This new national organization was formed by a coalition of employers and workers’ compensation system providers after many realized the benefits achieved in Texas and those anticipated in Oklahoma. The board and ARAWC’s members have an intense interest in seeing employees better cared for by a more optimally designed and managed system. By seeking options to traditional workers’ compensation, the organization has a goal of also driving economic development through the attraction of employer savings.
ARAWC’s mission is to expand the delivery of better medical outcomes to injured workers by expanding employer choice in other states.
Where Oklahoma’s SB 1062 offers Oklahoma employers a choice to opt-out of the state system the opportunity to substantially reduce work-injury costs and avoid both the statutory system’s extensive regulation and litigation risk, similar goals for other states are being established by the leaders of ARAWC for the benefit of both employers and employees. Two key statistics reflect a clear basis for why Oklahoma changed and improved their approach to employee injuries:
- Oklahoma employers cited that workers’ compensation cost was the No. 1 reason they were either leaving the state or adding jobs at facilities located in other states, such as Texas.
- 2012 NCCI statistics showed Oklahoma loss costs to be 225 percent higher than neighboring states.
ARAWC is now developing strategies and plans that will identify the states where statutory change can bring the most benefit to both employers and employees. The founders expect that their efforts will enable the delivery of better medical outcomes to injured workers and give employers more choice on how employee injuries will be managed.
Currently, 48 states effectively mandate workers’ compensation insurance as the sole option for employers to cover employee injuries. ARAWC’s mission is to expand the delivery of better medical outcomes to injured workers by expanding employer choice in other states. Experience under these alternative employee injury benefit platforms has proven to dramatically reduce employee injury costs, while achieving higher employee satisfaction and substantial economic development.
Over the past two decades Texas “Non-subscribers” have achieved better medical outcomes for hundreds of thousands of injured workers, and saved billions of dollars on occupational injury costs. While ARAWC is not necessarily taking the Texas model forward into other states, it will leverage the experience from over 100 years of having options in Texas and what emerges from the changes from Oklahoma’s new statute, to drive a strategy for process improvements and lower costs in selected states where change is overdue.
Providing employers more choice in financing and responding to employee injuries can positively impact employees, employers and health care providers. Experience supports that competition to traditional workers’ compensation insurance can reduce premium rates and improve services. Enabling choice of program design increases employers’ participation into the process, which allows them to hold all service providers accountable for results and outcomes. It also enables employees to access medical providers that do not accept workers’ compensation clients because of low fee schedules and paperwork required. In the absence of statutory mandates, responsible employers create high quality benefit plans for occupational injuries, enabling improved access to better medical talent leading to higher employee satisfaction, better medical outcomes, and lower cost claims.
The member companies of ARAWC aspire to refocus state-based mandates in response to growing gaps in quality medical care, efficient risk financing, effective return to work and other gaps in many current systems. Some of the other expected benefits of ARAWC’s strategy are expected to be:
- Improved workplace safety and training supporting injury prevention
- Expanded access to quality medical providers providing exceptional care
- Opportunity for expanded benefits through custom designed plans
- Opportunity for reduced waiting periods for wage replacement with greater benefits
- More expedient medical treatment and more immediate referral to specialized medical treatment to enhance recovery
- Early identification of potentially complicating medical conditions and securing appropriate medical treatment to aid recovery
- Improved communications with injured workers to address benefit questions and assist early return to work
Nationwide, the experience under alternative employee injury platforms suggests we can slash the cost of the workers’ compensation system in half with higher employee satisfaction. How? By providing employers the option of alternative mechanisms which can result in:
- A more competitive insurance marketplace. Experience supports significant rate reductions when choice is introduced over prior pricing where limited options exist.
- Improved incentive for existing workers’ compensation providers to improve services and pricing knowing the employer has an option to be more engaged in helping injured workers recover and return to work more quickly and efficiently.
- Incenting medical providers to act in the best interests of the employee and improved levels of service.
- Expanding employee access to medical providers who do not accept workers’ compensation patients because of low fee schedules and paperwork required. As a health plan for occupational injuries, opportunity exists to access the very best medical talent leading to higher employee satisfaction and medical outcomes.
- An injury benefit plan can more efficiently deliver care to and achieve better medical outcomes for injured workers.
ARAWC is just the latest and perhaps one of the better examples of what an often moribund, ineffective, inefficient system can motivate; change that can benefit all participants while reducing bureaucracy and many of the negative elements it brings to effective employee injury recovery.
The Many Aspects of Fraud
I was recently reading an industry column on the ubiquitous subject of workers’ comp insurance fraud. The author of that piece postulated that there were essentially two types of fraud: premium fraud and claimant fraud.
Of course, claimant fraud is the usually the first thing people think about when they think at all about fraud. Most likely a far distant second thought to claimant fraud is premium fraud. That is usually the province of unscrupulous employers attempting to save on workers’ comp premiums by intentionally under reporting the amount of employees they have working, or misreporting the class code exposures of those workers.
If only life was so simple. Regrettably, there are various other strains of fraud that have plagued our existence at various times, for example, the California situation in the early ’90s. Anyone who was around and connected with workers’ comp insurance in California could not overlook that bane of existence for insurance carriers and employers during that time.
The impetus for this massive viral strain of workers’ comp fraud in California was that the workers’ comp law required employers/carriers to pay for medical exams for workers on contested cases such as continuous trauma and occupational exposure claims. With this incentive, clinics actually began to start law firms, which the clinics surreptitiously owned, with the overriding intention of feeding the clinics “patients” to examine. Applications to the Workers’ Comp Appeals Board were then filed by the law firms alleging various and sundry disabilities that required myriad medical exams to quantify the permanent impairment rating as well as future regimen of treatment recommendations.
A battery of medical examinations often yielded charges exceeding $10,000 in total. The applicants’ attorneys were more often than not willing to settle the claims on compromise and releases for a minimal amount of money to the claimants, because that was not the point of the entire endeavor. Once the case was concluded with the claimant, the medical liens had to be addressed. This resulted in a windfall revenue stream for the clinics that viewed the law as a license to steal, and did so with a frightening degree of efficiency and regularity.
Where did the clinic owned attorney firms obtain their workers’ comp “clients”? That was another innovation. It was basically the workers’ comp version of ambulance chasing. They would go down to the unemployment offices and “cap” them off the lines of people there to collect their unemployment check, or to make a claim. This one can be filed under doctor and attorney fraud. However, one must admit to the simple elegance of this system, which added incredible cost burdens to an already overwhelmed workers’ comp system in the state with the largest population base in the country.
There have also been cases of claims adjuster fraud in the industry. These involve “enterprising” claims professionals who typically devise methods to embezzle funds out of their employer in the form of fraudulent claim payments made to bogus medical providers. This scheme usually entails setting up a medical provider in the payment system that the adjuster has “founded.” Durable medical equipment is a favorite choice in this realm. The key is to spread the payments to the provider (whose address is invariably a post office box) over a group of files so as not to attract any undue attention of claim and/or financial auditors. Over the course of a year or two, these adjusters can accumulate tens of thousands of dollars. The ones that have been caught either were too greedy, and streamed a surfeit of payments over a short period of time to the “vendor,” or else were simply the victim of a serendipitous audit that discovered the fraud.
Another not entirely unknown adjuster-perpetrated fraud involves seeking willing accomplices to initiate false claims that the adjuster would most likely handle. The adjuster makes payments to the claimants, who then split the claim payment “proceeds” with the adjuster. Although this is more likely in a liability claim scenario than a workers’ comp case, there have been incidents of this nature in the workers’ compensation landscape.
Let us not overlook possible producer fraud. There have been a number of situations over the last several decades involving premium being collected by an agent for coverage, and then not being forwarded to the insurance carrier. This is an audacious form of fraud as the corrupt producer is gambling that there will be little or no claims turned in on the supposed in-force policy. Of course, in the workers’ comp arena, at least seven out of every 10 claims involves no compensable lost time (“Medical Only” in the vernacular), and these claims are usually minimal in cost. Moreover, in many instances, the accident reports are sent directly to the agent, who can then pay for the medical treatment out of the embezzled premium funds. One must have nerves of steel to engage in this type of fraud, but it has been done.
The medical community is also not entirely pristine in this area. I have seen several instances in my own career where bills for medical appointments that never took place have been submitted for payment. These are often most difficult to discover, especially if the modalities are many over an extended period of time. But it has happened.
As is evident, there are many more types of fraud than simply claimant and employer generated. As the aphorism goes, where there is a will, there is a way. Vigilance is always necessary.
Passionate About Technology
If you overheard the passion and enthusiasm that Brit Waters uses to describe his most important business technology, you would immediately assume it was the latest smartphone or tablet. But it’s not Apple or Google that generates so much enthusiasm, it’s the Riskonnect risk management platform.
“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable,” said Waters, Manager, Risk Management at Avery Dennison Corporation. “These are not bandages, but complete solutions.”
Avery Dennison is a multinational company offering labeling and packaging materials and solutions whose applications and technologies are an integral part of products used in every major market and industry. The company operates in more than 50 countries with over 26,000 employees and $6 billion in revenues in 2013.
“Riskonnect revolutionized how our department does business. This system changed the way we gather, analyze and communicate information. It’s made us more efficient, effective and reliable. These are not bandages, but complete solutions.”
– Brit Waters, Manager, Risk Management, Avery Dennison Corporation
The company partnered with Riskonnect, the provider of premier, enterprise-class technology platforms. In just 18 months, the system not only revolutionized the department but also delivered wide-ranging value for plenty of other parts of the organization. Those departments utilize the system to manage financial assets, keep track of vehicles and will soon oversee facilities requests.
‘The Simplicity is Unreal’
For global property insurance renewals, Riskonnect changed the way Avery Dennison collects data on its 300 manufacturing facilities, warehouses and other properties around the world. Gone are the days of sorting through hundreds of separate emails with information about the properties and merging hundreds of separate spreadsheets into one.
Not only was the old process cumbersome, it left lots of room for error.
With Riskonnect, the process is automated. It sends emails to the more than 100 individual contacts and the users insert the information into the Riskonnect portal themselves — something that makes Waters’ life a whole lot easier.
“I hit a button once and it runs the report for me. The simplicity is unreal,” he said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring.”
Waters said it’s a big time-saver. “Before, the process could take up to three months, and now we get it done in less than a month.”
One thing he’s particularly excited about is the configurability of the portal. If he wants to customize it, he can easily do so without going through a computer programmer or contacting an account executive.
“It gives you the power to set up the system as you need it, not as someone else envisions you need it,” said Waters.
The Riskonnect portal is also the primary source for reporting workers’ compensation claims. Again, the Riskonnect system simplified the process. Before, employees had to call a 1-800 number or fill out a long form and fax it to the Third Party Claims Administrator (TPA). Now they just log on and use the claims reporting portal, which is equipped with drop-down menus and other efficiencies that help expedite the process.
“We take the guessing game out of their hands,” said Waters. “In a matter of minutes, they get a confirmation email that the claim has been submitted to the TPA.”
Through the Riskonnect dashboard tools, Waters and his department can learn a lot about trends in workers’ comp claims. The system tracks claims year-to-date, costs, causes of injury and even the top body parts that are hurt. Then risk management communicates that information to local managers to make sure that safety-and-prevention programs are appropriate and will help reduce the amount of claims and their costs.
“The Riskonnect dashboards layout all this valuable information in easy-to-use tables and charts, making it simple for us to study the data and implement necessary safety changes,” said Waters.
ROI on a Values Collection Module
At the start of the process, Waters never imagined just how many other departments would use the tool. The finance department uses the system for asset management. The fleet administrator uses it to have drivers sign off on its manuals. Even the facilities department is jumping on board, using the Riskonnect system to identify when properties need repairs to big-ticket items like roofs or windows.
The company is also looking to report global property claims, transit claims and employers’ liability claims through the platform. It’s even evaluating if it can use it on the shop floor with health-and-safety team members having easy access to the system via iPads.
”The Riskonnect platform can help many different departments with a wide variety of tasks,” said Waters. “It’s really making risk management a much more strategic contributor to the company.”
“I hit a button once and it runs the report for me. The simplicity is unreal,” Waters said. “Plus, it gives us better information that we can communicate to our insurance carriers, and gives them increased confidence about the risks they’re insuring. Before, the process could take up to three months, and now we get it done in less than a month.”
Waters’ enthusiasm for the product is clear, but he’s not alone. End-users are raving about how easy, intuitive and customizable it is. For example, training end-users used to consist of holding approximately 15 different webinars to walk everyone through the process. Now, it’s accomplished in one easy-to-understand mass communication through the Riskonnect portal.
The end users even helped Waters and the Avery Dennison team add efficiencies that improve the entire process. On the property reporting side, they suggested adding an attachment tool for adding spreadsheets – so the information is easy to find the following year.
“It’s amazing when you give the end users a product and you see how they come back to you with advice that you never even thought of,” said Waters. “That speaks volumes for the system.”
In just 18 months, Riskonnect changed the way Avery Dennison does business — something Waters can’t hide his enthusiasm about.
“I don’t consider them just a vendor,” said Waters. “I consider them a long-term strategic partner.”