Rousmaniere: The Stale State of Reform

Trying to lower workers’ compensation costs was a once compelling song that is worn-out. It is a story of employers burdened by “out of control” costs and legislators passing laws to fix this problem.  Employer costs are no longer the problem they used to be.

Yet we can’t seem to get this song of our heads.

It was not always this way. In the 1970s the dominant theme was increasing benefits to injured workers. After a federal commission threatened states with federal takeover due to their moribund action on benefits, coverage rose from 85% to 95% of workers today. In a few years, wage replacements rose from 68% to 77%, and some waiting and retro periods were improved for workers. Employers paid up, with insurance costs rising from $1.14 to $1.47 per $100 in payroll by the mid 1970s. (The 2016 Oregon Workers’ Compensation Premium Rate Ranking Summary says that the median state’s cost in 2016 was $1.84.)

Then costs spurted and medical care become a lot more complicated.  The force of this rise tailed off in the late 2000s. Opioids have provided the only real “out of control” story in many years. Thanks to private and public sector initiatives, the crisis is less worrisome now.  Except for very few states, what crises exist in workers’ compensation today don’t fit into the narrative that costs are a big problem and legal reform will fix it. 

Iowa provides an example of how hand-me-down the story is. Republicans, who took over the state capitol, say that costs are out of control, as they reportedly seek to stop workers’ comp benefits at age 67.  To be sure, retiring at 67 is a mirage for many. The NCCI (National Council on Compensation Insurance) reported for Iowa in mid 2016 that the cost situation was rather boring. The frequency of lost time claims declined by 46.9% between 1996 and 2014. Adjusting for wage growth, indemnity costs per claim have been near-flat since 2009. Since then medical costs per claim have inched up about 2% a year.

Iowa should pay attention to its workers; 10,000 of whom will likely suffer a lost time injury in 2017. In Iowa, as is the case for half the states, a couple both at the state’s median wage and living in the most populous city cannot not afford the basic household budget when one of them on extended work disability.

Yet in conferences and in the media, attention fixes on employer costs and reform.

Oregon’s Department of Consumer and Business Services reports semi-annually on employer insurance costs per $100 in payroll for each state. There is no mention of worker benefits. My conversations with the Department lead me to conclude that it has never seriously considered how deeply flawed its scorecard is. Would that Department ever compare, for Oregonians, the costs of cars and houses without reference to quality?

The cost + reform narrative seduces us to absorb two unexamined assumptions.  One is to construe that legal provisions are sufficient explanations why employer costs are high or low. Thus, by implication, that fact that California’s costs are (according to the Oregon ranking summary) more than three times that of Indiana can presumably be explained largely by comparison of the laws of the two states. Demographics, worksite culture, legal culture and medicine don’t appear to count for much.

The other unexamined assumption is that to forecast how a policy change will affect the state, you need only ask for estimate of the cost to employers. 

State legislators are conditioned to ask NCCI and perhaps in-state analytical teams to “price out” a legislative proposal by defining the question solely as cost to employers. They ignore the cost to the families of injured workers.  This pattern of thought is so deeply entrenched than even in the very liberal state of Vermont (where I live) the only economic analysis the legislators received this Spring while considering a bill to expand PTSD benefits for emergency responders was the burden on the state budget. 

The classic cost + law model of system analysis remains, to be sure, useful and even essential. The Workers’ Compensation Research Institute (WCRI) periodically compares workers’ compensation costs. It takes care to track legislative changes. CompScope’s 18 states account for three out of every five work injuries in the country. For insurance costs, they represent in equal numbers high, medium and low cost states.

WCRI’s reports (not just CompScope) are invaluable for gaining a perspective on the country’s 50 natural experiments in workers’ comp systems. Nowhere else can a legislator, policy analyst, insurance executive or business strategist can find such a trove of information about the comparative behavior of costs in the light of law changes.  

However, perhaps WCRI needs to invest in a model that attends to the impact on the injured worker and her household. In fact, over the long run, some trends have been very beneficial to workers.  I estimate that number of work injuries that exceed 30 days of disability has dropped by 50% over decades when the workforce grew by 20%.  If one looks closely, one finds this is a workers’ comp story as much as it is a safety story.

Only a handful of studies have looked at the welfare of injured workers. RAND (Research and Development Corp.) has analyzed shortfalls in income to workers over the long term.  Texas estimated the impact of wage replacement on take-home income of injured workers. PartnerSource published this Spring a comparison of how injured workers might fare whether they were injured in the conventional workers’ comp system or in the state’s opt-out system. The report argues that opt-out can be much more generous to workers.

When might we see a report about an employer, insurer or state system in which the major success is not cost reduction but protecting the welfare of workers? Perhaps what we need to do is take after Peter Drucker, and how he reportedly urged new businesses to invent the customer anew, and not persist with hand-me-down formulas.

ABOUT THE AUTHOR

Peter Rousmaniere is widely known throughout the workers’ compensation industry, both for his writing and consulting experience. Based in the picture perfect New England town of Woodstock, VT, he is a regular on the conference circuit, and is deeply in tune with trends and developments within the industry. His passion is writing and presenting on issues largely related to immigration, and he maintains a blog on the subject at www.workingimmigrants.com.

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