With the nation’s legislative landscape dominated by health care reform and relatively stable workers’ compensation rates in 2010, workers’ compensation fell off the radar screen. However, a more careful review points to challenging times in the years ahead. Here are 11 issues that bear watching.
1. Declines in frequency of claims slowing
According to insurers, the long-term trend of declining claims frequency (claims filed per employer payroll) is flattening. This is significant because declining trends that started in 1991 have helped counter rising medical costs driven by the severity of claims and increased utilization. It’s too early to determine the reasons or permanency of the shift, and it could be a temporary blip caused by employers cutting back on safety initiatives. On the other hand, a strengthening job market could mean hiring employees who are less experienced and more prone to injuries.
3. Medical costs continue to rise
According to NCCI, the medical costs of lost-time workers’ compensation claims continue to grow at a faster rate than the medical consumer price index and now represent 58 percent of claims. An important study, “Impact of Cost Intensive Physicians on Workers Compensation” by Edward Bernacki, MD and his team at Johns Hopkins, appeared in the Journal of Occupational and Environmental Medicine in January 2010.
Using five years’ closed claim data from the Louisiana Workers’ Compensation Corp., they studied claims that began with reserves less than $15,000, but migrated to reserves of +/-$50,000. Of those claims, 3.8 percent of physicians involved were responsible for 72 percent of the costs. The numbers clearly demonstrate that “cost intensive physicians” — those who had higher medical costs, longer medical treatment duration, longer claim durations — mean higher indemnity costs.
5. OSHA everywhere
With increased funding, additional staff and a vigorous agenda, OSHA significantly increased its enforcement activity and its fines in 2010. The National Safety Council (NSC) noted, “While the list of OSHA’s Top 10 most frequently cited violations remains mostly unchanged, the agency’s message of strong enforcement is clear.” For the first time since publishing the annual OSHA Top 10 feature, each of the 10 highest penalties issued in a fiscal year exceeded $1 million. This stepped up agenda is expected to continue in 2011.
6. Litigation swells
While workers’ compensation was founded in part to avoid litigation between employers and employees, litigation is very much part of the system. Moreover, the Equal Employment Opportunity Commission (EEOC) is on pace to set another record in 2010 because of the expansion of the legal environment, including ADA (Americans with Disabilities Act) amendments, GINA (Genetic Information Nondiscrimination Act) and the Ledbetter Fair Pay Act.
7. Misclassification of independent contractors hot issue
Both federal and state agencies stepped up their oversight of the classification of independent contractors in 2010. In addition, the number of worker class-action lawsuits against employers relating to independent contractors rose 50 percent in the same year to a record 300 according to Garry Mathiason, vice chairman of labor law firm Littler Mendelson.
According to a USA Today article, “States, feds crack down on firms using ‘contract workers,’” the Department of Labor forced employers to pay $6.5 million in back wages to 5,261 employees in fiscal 2010, up sharply from $2.6 million owed to 2,190 employees a year earlier. States are also increasing enforcement, with about 20 passing laws in the past two years that make it easier to force employers to reclassify contractors as employees and seek unpaid taxes.
9. Telecommuting is changing the workers’ compensation landscape
While telecommuting can be advantageous for both employee and employer, it poses challenges for workers’ compensation. Employees working at home can create exposures that do not occur in the office setting.
Although employers have little control over home office design, they are charged with providing a safe and healthy work environment and must afford the same protection to those working at home as those working in the office.
11. Uncertainty in the insurance markets
Economic conditions, low interest rates and decreased demand have put pressures on the workers’ compensation markets. Liberty Mutual CEO Edmund “Ted” Kelly called workers’ compensation coverage currently being sold by insurers — already largely unprofitable while inflation is low — a “time bomb” that will become even more costly for insurers when inflation shoots up.
The CEO of American International Group (AIG), commented on CNBC that AIG was going to be cutting back on its workers’ compensation exposure due to some unrealistic marketplace pricing. While the soft market is predicted to continue in 2011, employers need to recognize that the seeds of the next hard market are being sown.