Terrorism Shows Holes in Workers’ Comp Benefits

Monday, March 30, 2015 | 0

The Insurance Information Institute criticized ProPublica’s recent reportage on workers’ comp. It noted contributions by insurers in reducing the rate of injuries. But the III did not address the main point of ProPublica, which the U.S. Occupational Safety and Health Administration also raised, that some state benefit systems have dimmed their protection of workers.

Does the III consider benefit plans worth discussing? One answer to this question can be found in how the III addresses the threat of terrorist attacks. Since 2001, it has been perhaps the most vocal advocate of federal reinsurance to back up workers’ comp insurers that assume huge losses from such an attack. Its advocacy was possibly crucial when Congress created a backup system in 2002 and renewed it with revisions in 2005, 2007 and on Jan. 7 of this year.

It argued forcefully for federal backup without disclosing that conditions that would predictably arise out of terrorist attacks, such as mental illness and cancers, are not well covered by workers’ comp benefit systems. These systems do not work well outside acute physical injuries. 

Had it disclosed this problem, Congress would have had to address the inconvenient fact that workers' comp insurers are under no legal obligation to pay for many terrorist act-induced conditions. 

Would have Congress then found, well before the ProPublica and OSHA critiques,  illogical interstate variations, including absence of essential benefits, and a bureaucratic benefit delivery system?

Congress had already found that to be the case, after the Clinton administration discovered in the 1990s that state systems failed in a roughly similar exposure. Nuclear weapon manufacturing employees who were exposed to disease were unable to access workers’ compensation benefits, even when technically available. In response, Congress created the federal Energy Employees Occupational Illness Compensation Program. There’s no evidence that states resisted this federal takeover. They actually liked it. They did not have to reform their systems.

The story of how Congress approved the Terrorism Risk Insurance Act for benefits that are limited or non-existent has never been carefully narrated. But the highlights are available in the history of predicting workers’ comp losses.

When TRIA was introduced as legislation in 2002, the National Council on Compensation Insurance submitted an estimate of losses from a future attack. In later years, Rand took over the estimating job. Its main contribution was a 2007 report, “The Federal Role in Terrorism Insurance.” Rand also issued a policy brief in 2014 designed to promote a renewal of the Act. 

Predicting losses from a terrorist attack for any line of insurance is very difficult. Rand relied on a catastrophic model prepared by the firm RMS, which appears to have expanded a property loss model to project physical injuries and deaths. This suggests that psychological conditions, and all the nuances of worker’ comp laws, were overlooked. 

The New York City Health Department estimated that 12% of World Trade Center rescue and recovery workers suffered from post-traumatic stress disorder. In 2002, the American Society of Workers Comp Professionals found a patchwork of coverage and severe restrictions for mental stress claims such as post-traumatic stress syndrome. The picture has not changed. Lexis Nexis columnist Thomas Robinson in 2014 counted 15 states as prohibiting any mental-only claim. (The authoritative source is Larson’s Treatise on workers’ comp law.)

Dr. Jennifer Christian and I presented at the 2002 RIMS conference on PTSD incidence. We laid out several scenarios, from a lone gunman to a catastrophic event. Drawing upon published studies and advice from PTSD researchers, we estimated the rate of PTSD graded by proximity and other factors. In the audience was the risk manager of the Port Authority of New York and New Jersey.

Another class of pertinent conditions includes diseases resulting from chemical, biological, radiological and nuclear terrorism. Coverage of cancers and other diseases associated with these exposures is notably tortured in workers’ comp. That is why the Feds took over disease benefits for nuclear weapon workers.

One can search reports by Rand, the III and others from 2002 onward and not find a cautionary passage on coverage gaps, much less analysis of them. For instance, take the World Trade Center attack, which the III reports cost workers’ comp insurers $1.8 billion in losses. Rand removed workers’ comp from an otherwise broad review of compensation for 9/11, which it published in 2004. Aid to injured workers was disjointed, spread among independent sources. The New York Legislature belatedly enacted a law in 2006 that removed a statute of limitations and lowered evidentiary hurdles for World Trade Center disease claims.

The insurance community focuses on sustaining itself after cataclysmic events. It faces a huge challenge with Congress’ fickleness. In effect, it applied the journalist maxim, "first simplify, then exaggerate." Maybe that’s what the critics of benefit plans do as well. You do it to get people’s attention.