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SJHRA Worker's Compensation Seminar

By Keith T. Chiles, MBA
 

One of the most common questions I receive as a business consultant are inquiries as to how to get around the high cost of worker's compensation insurance. The problems seemed to have begun at around the year 2000, and seemed to get much worse during the last two years.

   Attempts to determine the root cause of the problem with worker's compensation insurance rates were made difficult, because so few people understand the fundamental problem.  Just to make matters worse, it was politicized during the recall campaign of Governor Davis.

   The problem became a focus in the Governor Davis recall campaign last year. Those listening to the rhetoric of the campaign might believe the cause of the problem was Governor Davis awarding worker's compensation insurance contracts to his friends and associates. A better way to evaluate what went wrong with the to look at the recent changes noted Senate Bill 899. Looking at how changes in the law under Governor Schwarzenegger provides a pattern of abuses that were allowed under the older laws.

   With the passage of Senate Bill 899 I am often asked how soon businesses will see relief from the high-cost of worker's compensation insurance. Unfortunately, it may be over three years before we see reductions in premium rates, and then those rates may only drop by as little as 15 percent.

   I recently had the pleasure of attending the San Joaquin Human Resources Association meeting where Jeff Lusich and Judge Timothy Nelson presented their views on the new changes to worker's compensation laws. Jeff lusich is a worker's compensation attorney and Judge Timothy Nelson is sitting Judge in court that presides over worker's compensation claims. Their thoughts and insights into the changes in the laws shed a considerable amount of light on how we got into the problem and how the new laws are addressing those issues.

   To understand how the worker's compensation insurance situation became so problematic we have to examine the changes. We must understand that most things done by our state legislature will swing back and forth like a pendulum as a legislature attempts to correct new problems generated by advantages in past laws.

   It became apparent that the current problems that led us to the current situation where generated by attempts to prevent abuses by employers and insurance companies. This will become more clear as we examine the changes to the new laws.

   At no time did the presenters suggest any specifics about the cause of the current worker's compensation situation in California. The fundamental problems became apparent from the changes. Those fundamental problem appears to be caused by fraudulent claims of injuries, excessively prolonged treatments, and possibly a medical system geared toward the perpetual treatment of injured workers instead of addressing the issues.

   It was clear from the changes in Senate Bill 899 that abuses of the former system were being addressed by the new reformed worker's compensation laws.

   Under the previous laws an injured worker was placed in the treatment of a physician and the doctor had presumed authority over the treatment of the patient.  This gave the upper hand to the patients treating physician if the case was appealed into court. 

   Under Senate Bill 899, this presumed authority no longer exists and the opinions of other doctors may be considered by the courts without going through a lengthy qualification process.  This change should have a significant effect on patients who remain under the care of a doctor in the worker's compensation system.

   Under the new system, there will be have to be a specific diagnosis of the injury received by the worker, and evidence that the injury is tied to the workplace. The should be relatively simple in cases of accidents, but not so in cases of chronic injuries.

   Once a specific diagnosis is made by the treating physician, the course of treatment must now be prescribed based upon state or federal guidelines. These treatment guidelines must be cited by the physician along with the duration of treatment prescribed in the guidelines. This means that most appeals in the new process will be a battle of guideline interpretation and not just the opinions of the doctors.

   As I understand the old system, a worker could claim a back injury. When the back injury is reported to the employer, the employee would be referred to the company's worker's compensation physician or allowed to go to their own family doctor. At some point, however, the employee can see their own doctor at the expense of the employer's worker's compensation carrier. As the treating physician, that doctor controls the employee's treatment.

   The treating physician could establish a long-term prescription at the expense of the worker's compensation insurance carrier. The insurance carrier appears to be liable for the treatment even if there's a question regarding the origin of the injury. This appears to have allowed many people and to claim injuries at work and receive long-term medical treatment at the expense of the worker's compensation insurance carrier.  Unnecessary medical expenses may represent much of the rise in the cost of insurance premiums.

   Under the new system, the insurance carrier is responsible for no more than $10,000 in medical expenses until the claim is determined to be work related or not. If it is considered the work related the insurance carrier continues treatment with the doctor. If the injury is determined not to be work related, and then the medical treatment is the responsibility of the employee or the employee's health-care provider.  These laws appear to put checks and safeguards into place to prevent an endless cycle potential expenses when an employee claims to have been injured on the job.

   In the case of legitimate workplace injuries, the diagnosing physician must make a specific diagnosis and establish care based upon physical evidence of the injury. The physician will go to a series of sources to obtain standardized treatment for the specific diagnosis. With interestingly these guidelines can be found at www.guidelines.gov, which is the national and guideline clearinghouse. The guidelines are an initiative of the agency for health-care research quality assurance. They were developed under the cooperation of the American Medical Association and the American Association of Health Plans.

   Another change in the worker's compensation laws is that old injuries or disabilities no longer have a cumulative effect with new ones. This means that person with a 10 percent disability, who experiences another accident resulting in a 20 percent disability, will not be automatically considered to be 30 percent disabled. Instead, it appears that the employee will have all disabilities reviewed to determine the new percentage of overall disability. These are also expected to be determined based upon established guidelines.

   The reason medical costs are being addressed so aggressively by the new laws is that medical costs are behind most of the cost of worker's compensation. Statewide standards are now going into place to standardize care for injured employees. It may be a long time before the standards are fully understood by both the legal in medical communities.

   One most common answers to questions about the new laws is simply: "I don't know." The reason for the indecisiveness is that Senate Bill 899 seems to be a splint bill. Some of the provisions of Senate Bill 899 went into effect on April 19, 2004 when it was signed into law by the Governor.  Other provisions of the law do not go into effect until later. This is created a problem for cases that were under appeal at the time the law was signed, and many will require those cases to go back for re-evaluation by lawyers and a new appeal filed with the courts.

   Not only must care given to injured workers be supported by standard guidelines, so must a decision to refuse a claim. The consensus at the seminar was that the new system will make it more difficult for the worker to obtain long-term disability, however, disability payments will probably be higher under the new system once they have made through all the checks and balances needed to establish a person as being disabled.

   Does this mean that all worker's compensation cases are fraudulent?  Not at all.  Most cases are legitimate work related injuries.  There are two basic ways that worker's compensation fraud might appear.

   In the first case, the employee intentionally fakes an injury in order to get time off with pay.  There are a variety of reasons for doing this, but the most common is to get a paid vacation.  The employee aggressively pursues all rights and privileges under the law and is able to avoid working while receiving an income.

   The second common type of worker's compensation fraud is with the employee who suffers a minor injury and sees a doctor who prescribes an excessive number of treatments in order to bill the employers insurance carrier for more visits.

   Both kinds of fraud are addressed by the new law.   The issue of fraudulent claims is addressed by requiring the doctor to give a formal diagnosis that relates the injury to the work related accident.  The second kind of fraud is addressed by requiring the doctors to use the guidelines in treating the patient.

   It would appear that changes in the law will reduce the number of fraudulent claims by people who are too injured to work, but seem to be able to engage in recreational activities.

   It is easy to see that changes in the worker's compensation insurance laws have muddied the waters and the solution has been to essentially put many of the laws back to where they were in 1996, which was prior to the changes the created the crisis. Unfortunately, health-care costs are rising so rapidly and that the new laws will probably only slightly ease the climbing costs for two or three years. What is really needed is more reform in the area health-care costs.

   The organizations most affected by the new laws will be those companies large enough to self-insure. This is because the new laws require that worker's compensation health-care providers have a complete and broad range of services available to treat the injured worker.

   This is not a problem to the average reader of the Tracy Business Journal, but it became clear that we may soon see large health-care providers, such as Kaiser Permanente, enter the worker's compensation arena. We predict that worker's compensation carrier's and large HMOs will soon join together to provide seamless worker's compensation and health-care coverage for employees.

    It is not uncommon for some businesses to see worker's compensation premiums as high as $38 to $60 per hundred dollars of payroll. This rapid rise in worker's compensation premiums have driven many companies to seek relief or go out of business. The most common question I see in my consulting practice is, "Can I pay my employees as subcontractors and avoid having to provide worker's compensation insurance to them." My response to employers is to suggest they not consider such short-term approaches.

   It is my opinion that gaining relief from worker's compensation costs by creating subcontracts with employees would be very short-term and would eventually result in a redefinition of what constitutes an employee. Businesses have often sought creative ways to reduce the number of employees in an effort to reduce various costs and taxes. In most cases, the courts or the Internal Revenue Service have redefined the definition of an employee to thwart such creative solutions.

   It is my belief that to subcontract work to existing employees would result in both the courts in the Internal Revenue Service redefining them as employees and possibly imposing fines upon the businesses attempting such tactics.

   Despite the changes in the worker's compensation laws it will still be at least two to three years before we are likely to see any relief from the high premiums. This is because the law is new and the insurance companies are unclear as to how it will be interpreted and applied by the judges. It will require experience under the new laws before the worker's compensation carriers can establish revised rates based on that experience.

   It is my opinion that any relief from from the high price of worker's compensation will be consumed by increases in medical costs over the next two or three years.

   The San Joaquin Human Resources Association seminar on worker's compensation was time will spent. There were approximately 75 human resources professionals and consultants in attendance, and all attendees listened intently as material was presented. I encourage business owners who read the Tracy Business Journal to periodically checked the calendar of events at the bottom of the index page for the next meeting of the association, and plan on attending meetings that are of interest.

   Membership is not required at these excellent presentations that includes lunch.

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