Tag Archives: workers’ compensation

Court’s ruling has financial implication on Florida’s workers’ comp industry

Earlier this year, the Florida Supreme Court ruled that state law limiting attorney fees in workers’ compensation insurance cases was unconstitutional. The law was found to prevent challenges to the “reasonableness” of attorney’s fees awarded in such cases. In this article, Milliman consultant Simon Wong provides a brief history of Florida’s workers’ compensation system, discussing how the court’s ruling will affect carriers and self-insured employers moving forward.

Here’s an excerpt:

The court thus found the “irrebuttable presumption,” or inability of any claimant to challenge the fee, to be unconstitutional. In striking down the fee law, the court directed the state to return to previous law “until the Legislature acts to cure the constitutional infirmity,” essentially returning Florida’s workers’ compensation attorney fees structure to the pre-SB 50A system based on hourly fees. The decision emphasizes that “the fee schedule remains the starting point, and that the revival of the predecessor statute does not mean that claimants’ attorneys will receive a windfall. Only where the claimant can demonstrate … that the fee schedule results in an unreasonable fee—such as in a case like this—will the claimant’s attorney be entitled to a fee that deviates from the fee schedule.”

The concern is that this also means a return to the high pre-SB 50A levels of attorney-represented claim costs. In response to the Castellanos decision, the NCCI initially proposed a rate increase of 17.1% to new, renewal, and all in-force policies effective on or after August 1, 2016.1 Subsequently, the NCCI proposed amending the filing to include the impact of the Westphal decision as well, and proposed a rate increase of 19.6% effective October 1, 2016.2 It should also be noted that the Castellanos and Westphal decisions have a retroactive impact on all claims that remain open or are reopened on or after July 1, 2009, and January 1, 1994, respectively. Because workers’ compensation rate-making is prospective only, insurers are not able to recoup premium to cover such unforeseen retroactive system costs.

For now, carriers and self-insured employers can look for increasingly more expensive workers’ compensation claims in Florida. Unless a legislative solution of some kind emerges, they should start preparing for higher attorney’s fees. More changes from the courts and the legislature are almost certain and should be monitored closely.

Select tail factors that incorporate unique exposure characteristics

The selection of loss development tail factors for workers’ compensation claims may have a significant impact on the unpaid claim liability for years. Milliman has created and used a workers’ compensation database that includes $55 billion of incurred losses to assist in selecting appropriate tail factors. In this article, Milliman’s Tony Bloemer and Tim Vosicky explain how selecting tail factors that consider three key variables—retention, location, and industry—can prevent understated or overstated incurred but not reported (IBNR) estimates.

Claims complicated by obesity weigh down workers’ compensation sector

Research shows that obesity is more than a major health problem in the United States. Obesity is also having adverse financial effects on industries like workers’ compensation insurance. A high percentage of claims related to obese and overweight claimants has resulted in more expensive workers’ comp payments. Milliman consultant Christine Fleming recently wrote a Best’s Review article explaining how the following processes can help insurers manage claims involving obesity and effectively assist injured claimants with obesity-related issues.

• Document information about claimants
• Carve out an obesity claims unit
• Communicate with claimants
• Consider early intervention of medical management
• Implement training on settling claims
• Consider incentives for employers
• Keep employees active

To read Christine’s article, “A weighty issue: Obesity and the implications for workers’ compensation,” click here.

Workers’ comp implications related to medical marijuana

State legislation supporting medical marijuana has increased in recent years. This trend may lead to a change in the federal policy. Workers’ compensation insurers and employers should take such legislative trends into account and begin developing organizational policies regarding the use and management of medical marijuana.

According to Milliman consultant Tom Prince’s article “Developments in federal marijuana policy and workers’ compensation insurance,” there are four key issues these stakeholders need to consider: medical research, testing procedures, reimbursement, and fraud.

Here is an excerpt from the article:

A specific challenge to the workers’ compensation industry is that much of the already limited existing evidence focuses on the drug’s potential as treatment for conditions and illnesses such as epilepsy, post-traumatic stress disorder (PTSD), Alzheimer’s disease, Parkinson’s disease, cancer pain, and others… Of more particular concern are considerations of the effectiveness of marijuana in treating acute, chronic, and neuropathic pain—symptoms most commonly associated with workplace injuries. In this vein, the benefits for chronic pain and neuropathic pain sufferers are fairly well established, but there remains dissent within the medical community, which is particularly due to the lack of substantial clinical trials evaluating the long-term safety of medical marijuana treatment….

A primary area of concern stemming from this inability to reliably test intoxication/impairment levels lies in determining the compensability of a claim… Proving that intoxication was the major—in some jurisdictions sole—contributing factor to the injury is a difficult defense to win regardless of the substance in question, and the lack of precision in marijuana testing casts further doubts on using a positive test as grounds for denial… Without a standardized and medically accepted measurement of marijuana impairment, this issue will remain problematic….

One of the foremost practical obstacles to those seeking insurance compensation for medical marijuana has been the lack of a standardized reimbursement rate. The difficulty in establishing appropriate costs is a legitimate concern for insurers. The conventional approach to standardized reimbursement rates for a drug is to receive FDA approval and a corresponding National Drug Code (NDC). This scenario is implausible without federal rescheduling to a Schedule II (or lower) classification and subsequent approval by the FDA. Further complicating this process are the limitations in medical research discussed earlier and the nonuniformity of the drug. THC levels found in marijuana can vary substantially from one sample to the next, making the determination of a standard “dose” difficult if not impossible.

A common and long-standing concern of the insurance industry regarding medical marijuana legalization is the potential emergence of a new class of fraudulent claims. Will insureds begin to claim some subjective malady (such as back pain) with the sole intent of procuring insurance-sponsored medical marijuana?

Unfortunately, the magnitude of this issue will not reveal itself until after potential legalization takes hold.

Safety bonus plans can wrap up workers’ comp claims

The inclusion of safety bonus systems within owner- and contractor-controlled insurance policies (wrap-up programs) may reduce workers’ compensation claims. In her article “Safety first,” published by Best’s Review, Milliman consultant Emily Allen explains how safety bonus systems function.

How might a bonus system plan work? Let’s take one example. If an owner or general contractor wants to reduce slip-and-fall claims, a per-claim, slip-and-fall allocation of, say, $10,000 would be applied to the subcontractor’s claim experience target (or expected claim level). If the subcontractor’s claim experience target was forecast at the program’s outset to be 10 claims but its actual claim experience turned out to be only six, the subcontractor would be paid 40% of the total available bonus.

The distributed bonus could be paid simply as cash or could be used to buy updated safety equipment, participate in training, research new safety materials, or any of dozens of other initiatives to improve safety. The bonus system would also allow for considerable flexibility in the establishment of the claim experience target and the method of distribution of the bonus based on an owner or general contractor’s relationship with individual subcontractors. The subcontractors’ adoption of bonus supported safety measures can translate into claim costs savings, not just in the following year but year after year, as safety continues to improve.

Using traditional actuarial methods, the claim experience expectation can be tailored to each subcontractor based on its individual historical loss experience. Developing a reasonable claim expectation—levels on which the subcontractor can improve but that do not guarantee a safety bonus—is critical to the success of a bonus program.

Managing self-insurance costs

A well-designed allocation structure can help hospitals lower self-insurance costs by distributing costs at a departmental or employee level more effectively. This article, authored by Milliman consultant Richard Frese, highlights some features that hospitals should consider when designing and implementing an allocation structure.

Setting Goals
When implementing an allocation, it is first necessary to achieve buy-in from members or departments and to define the goals. Allocations often apportion expected future insurance costs, historical unpaid claim liabilities, and tail liabilities (claims that have occurred but have not yet been reported). The finance managers should establish the goals of the allocation process to ensure program needs are met.

These goals should include ensuring that the allocation system encompasses five key features:
• A loss-control incentive that encourages safety among members
• Stability, with no significant fluctuation in annual contributions and liabilities
• Equity, as reflected in the fair treatment of all members (which does not mean that they all pay the same amount or rate)
• Intelligibility, ensuring the allocation is easily understood and readily accepted by members
• Ease of administration, allowing managers to carry out the allocation without difficulty….

Designing a Basic Structure
Allocations commonly are built on exposure, losses, or a blend of the two. Exposure often is defined as “bed equivalents” for professional liability and as payroll for workers’ compensation. Proper weights (i.e., conversion factors) translate – for example – occupied beds, outpatient surgeries, emergency department visits, and physicians into bed – equivalents. Different risk classes in payroll, such as nurses and clerical workers, also should be adjusted for. An allocation based purely on exposure is easily administered and may help keep the allocation amounts smoother over time.

An allocation using losses will encourage members to minimize losses, but may be more of a challenge to administer and design for several reasons.