The Workers' Compensation Crisis; The Hidden Truth

Saturday, December 6, 2003 | 0

The Workers' Compensation Crisis; What You Need to Know & What They Don't Want You to Find Out:

"The Hidden Truth"

Part 1 of 5

A lot of money is made in the workers' compensation system. This year, California employers will spend 29 billion dollars on workers' compensation costs. Which also means that a 29 billion windfall is up for grabs by those that profit from the system. Some people will become rich as a result of the current crisis in California, while others will be forced to close their doors forever.

One thing a 'crisis' brings about is change. Webster's defines crisis as "an unstable or crucial time or state of affairs in which a decisive change is impending; especially: one with the distinct possibility of a highly undesirable outcome". Webster's is quick to point out that the change brought about during a crisis isn't necessarily a good thing. As employers you must know this, understand this and act quickly on this.

During the frenzied state of crisis in the workers' compensation system, employers need to analyze where their dollars are being spent and track where they are going. We already know that many of these dollars are being spent involuntarily in a system that lends itself to fraud and abuse. This is primarily due to the inherit complexities of the system and the shortcomings of the insurance carriers and our legislature.

But this is not news, as we've known for years about unscrupulous doctors that churn injured employees through their mills like a processed food, just to make a buck. Their cohorts, the applicant attorneys, feed these mills with your injured workers like taking pigs to the slaughter. For some, the sole motivation is to keep your employee off work and running up the medical bills for as long as possible. They drag these cases on, sometimes for years, only to increase the likelihood of receiving a higher permanent disability (PD) rating of which they get paid a percentage. And they do it over, and over and over again.

What makes this a bit more palatable is that at least we know where everyone stands. We can draw lines in the sand and call them the bad guys. They don't pretend to be something or someone they aren't. They don't try to befriend us all the while siphoning money out of our back pockets.

One of the best examples of the above and a 'hidden truth' is what's happening to many self-insured employers today. Medical costs in California now account for 56% of total workers' compensation costs. Contributing to this problem are companies who claim to offer substantial savings to the employer and say that they play on the same 'team'. They are able to show monthly reports detailing their so-called savings and back it up with full color pie charts and graphs. It's enough to fool even the sharpest CFO's in companies all across the nation. If you haven't yet figured out who they are, you'll be in for a surprise as we uncover this scam in the next issue.

The single most important and decisive change employers can make is to get educated. Employers must not forget that they, whether insured or self-insured, large or small, are the 'true' payers of the system. Workers' compensation would not exist without employers. It is the money employers spend, what you spend, that drives the system. Ideally, an 'employer revolution' will begin to take place that is long overdue. As employers, we need to stop blaming everyone else in the system and begin to take control.

For an 'employer revolution' to take place, employers must learn how the workers' compensation system works, what the cost-drivers are and how to control costs. Employers need to take notice of the critical cost drivers in the system and begin by asking questions. For an insured employer, simply knowing your 'experience modification' factor is not enough, you need to know how it works and the 'why' behind it. Many employers do not know that the experience modification formula is set up to place more emphasis on frequency versus severity and is supposed to include 'buffers' from penalizing small employers too much for one large claim. In a future article, we will discuss how the current experience modification system has gone afoul by favoring the larger employers. As we hinted earlier, self-insured employers need to closely examine their vendor relationships and understand how their dollars are being spent, why they're being spent and who is receiving these dollars.

Once you start asking questions, you'll begin to learn things that weren't quite so obvious before. You'll find out that you know more then some of the experts you relied upon for guidance and advice. You'll begin to find solutions that were always there, but you just didn't know existed. You'll find out who your real allies are and uncover the one's that have siphoning money out of your back as they sit next to you and pay for lunch.

In the next part of this series, we'll begin to get under the hood of the workers' compensation system beginning with medical costs and managed care. We'll find out who the players are, what they do and how they make their money. We'll get creative as we look for solutions and foster a new "CompTimistic" attitude towards solving problems.

As we head down this path, I invite your comments and opinions, whether they are good or bad. With your permission, some may be republished here as a part of this series.

By Brent Heurter, President of the insurance brokerage firm Pavlo, Weinberg & Associates and the founder of ClearComp. Brent can be reached by e-mail at bheurter@employerbenefits.com or by phone at (818) 591-2663.

-------------------

The views and opinions expressed by the author are not necessarily those of workcompcentral.com, its editors or management.