Filed Under:Markets, Commercial Lines

Is Workers’ Comp Irrelevant?

At the risk of professional self-decapitation, let me commit some heresy: workers’ compensation today is largely irrelevant.

I make the above statement as:

  • An employer subject to an ever-increasing multitude of employment rules, regulations, statutes and court rulings that promulgate increased expense and continually fail to deliver to workers efficient, timely services and benefits.
  • An attorney who has personally witnessed the failure of workers’ comp to deliver on its promises of expedient medical treatment and income protection for employees without protracted litigation.
  • An industry publisher who is witnessing a system that no longer provides value to either employers or employees, and instead is used for profiteering by numerous peripheral vendors.

In addition, we now have a national medical care reform agenda that I think will profoundly alter the medical component of workers’ comp and, in my opinion, further devalue workers’ comp to employers and employees.

Workers’ comp and medical insurance grew up as independent systems, not because of efficiency or expediency, but because both were revolutionary in their origins and addressed problems brought about by the rapid industrialization of America.

At its infancy, workers’ comp was necessary because there was no health or medical insurance. Most people who were injured on the job in those days remained on the job if possible, so that they could earn enough money to go see a doctor. This was a huge paradox that the original workers’ comp laws sought to rectify.

Medical insurance ran a parallel course.There was no such thing as medical insurance then. Starting in the 1920s, physicians began offering pre-paid services through hospitals. This led to the creation of the “Blues” (Blue Shield, Blue Cross) in the 1930s to reduce price competition among hospitals by allowing the patient a choice of doctors and hospitals. Fees would be the same regardless of where the patient sought services.

Ultimately the “Blues” organized in the 1930s and began their expansive growth as the concept of “medical insurance” took hold.

In 1943, an administrative tax ruling (codified in 1954) said that employer contributions to medical insurance were not taxable as employee income. This precipitated a huge boom in the medical insurance market, and along with a major demographic shift to urbanization, created what we now understand as the “health” or medical insurance market.

Medicare and Medicaid added to the frenzy when passed by Congress in 1965.

While the evolution of workers’ comp and medical insurance was taking place, the root of the American economy was changing from industrialization to “informalization.” The value in a worker transcended from how much labor he or she could produce to how well knowledge and information could be applied to increase production.

The laws also have shifted in response to these social and economic changes. We have a panoply of employment laws that provide new sources of employer liability and employee rights and entitlements—the Americans with Disabilities Act (ADA), the Family and Medical Leave Act (FMLA), the Fair Employment and Housing Act (FEHA) in California, the Occupational Safety and Health Act, Title IX of the Education Amendments of 1972—which states that no person in the U.S. shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance)—to name a few that didn’t exist when workers’ comp was thought up.

Some states supplement federal coverage for disability and unemployment with their own systems.

Workers’ comp in most states has grown in complexity like the tax code, with various statutes, rules, regulations, exemptions, exceptions, differentiations and combinations providing “protections” (or obstacles) never conceived of by legislators or regulators.

As a consequence, I argue, the “great exchange” of workers’ comp no longer exists. Employers can get sued in civil courts with unknown outcomes for a host of employment issues represented by the alphabet programs listed above. Often, not enough employees are provided the promised immediate medical attention or indemnity (especially if litigated) that was the hallmark of this grand bargain.

“ObamaCare” adds interesting issues to workers’ comp:

  • Health insurance companies can no longer discriminate against pre-existing conditions—a windfall for carriers in states that don’t want to allow full compromise and release of the claim.
  • Electronic health records for every person in the United States by 2014—the portability of patient health information decreases the chances of hiding one health issue from one health system to another.
  • National scientific-based medical standards and outcomes expectations—call it medical rationing if you like, but most workers’ comp systems already ration care through American College of Occupational and Environmental Medicine (ACOEM), Official Disability Guidelines (ODG) or other treatment standards.
  • Adjustment of physician fees through Medicare—many states tie their fee schedules to Medicare.
  • Liberation of the rules to permit carriers to sell health insurance across state lines
  • Inclusion of tens of millions of new “patients” via health insurance exchanges.

And there likely will be more, regardless of Republican grandstanding. The national health care debate isn’t going away, and may likely evolve to some form of incentive program for employers to provide medical care coverage via either tax benefits, penalty systems or otherwise. For instance, H.R. 3590 (the Patient Protection and Affordable Care Act) already mandates employer coverage by 2017 for those with 50 or more employees.

In time, most employers will find it financially attractive to provide medical services to their employees, or find it financially unattractive to not do so.

If most employers are—through coercion or incentive—going to provide medical coverage, why have different medical delivery systems based solely on how one gets hurt or sick?

Some might argue that it would be next to impossible to allocate medical responsibility between employers that employ transient or temporary work forces—but this is done already with workers’ comp insurance (responsibility for the cost is allocated by payroll burden). And if a single-source payment system is created, then this objection becomes moot.

Let’s assume that the medical component of workers’ comp ends up “merged” into general health insurance. Where does that leave us? Dealing with the indemnity portion of the grand bargain.

Some may argue that workers’ comp medical is different, because it is intractably related to disability indemnity. But as study after study has demonstrated, tying indemnity to medical only promotes disability and provides incentive to not work or be productive.

Perhaps now is the time to start thinking differently of this worker protection system and change motivations to reward functionality. We have spent years figuring out how to reward impairment or disability, so why can’t we come up with systems that reward the opposite?

There are models in existence right now that function unbelievably efficiently, while providing better medical care and indemnity to workers and their families in numerous Texas non-subscriber employers. Lessons can be learned from these progressive employers and the people that set up their systems.

Certainly nothing will happen overnight. There are too many entrenched, conflicting interests that have developed over the past 100 years. But evolution is imminent, and in my opinion those of us who are in the daily trenches are best informed on the guidance of this evolution.

If we don’t engage in debate, explore the possibilities, and review what’s good and what’s bad about how workers’ comp (and general health insurance) works (either together or in discord), people who are not as well educated on the topic will make decisions that could impair the competitiveness of this nation and the social good of its people.

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