Wednesday, November 25, 2015

Workers Comp Opt-Out Plans

My friend, Peter Rousmaniere, has an interesting column on the subject of Workers Compensation Opt-Out plans as existing or proposed in various states. This article suggests that Peter, a long time wise observer of things related to Workers Compensation, is changing his view on Opt-Out programs.

Myself, I'm of a mind that these programs are kind of like socialism--possessing intriguing aspects in theory, but in actual practice pretty goddamned terrible--terrible for people who suffer injury or illness from their workplace, at any rate.

This country created our Workers Compensation system as a grand bargain, a compromise that protected employers from potentially catastrophic liability while giving employees a system that supposedly provided no fault benefits, including medical care and disability and death benefits, that could be relied upon. The Opt-Out programs I have reviewed impose draconian and unfair limitations and penalties on workers. I know that I sure as hell would not want to be relying upon the one-sided rules that Wal-Mart imposes on its poor workers if I were injured while working in one of their increasingly-depressing retail operations.  I've had a little first hand experience with how fair and impartial Wal-Mart is in the area of Workers Compensation, as a family member once was injured while working there. Hell, if they took decent care of their injured workers then the Walton heirs might have to sell off some of their art collection, and we can't have that.

Look, Workers Comp costs are a real issue for a lot of employers--nobody knows that better than I do, because I've devoted my professional life to helping employers control the cost of Workers Compensation insurance. But the solution to this problem isn't to screw over decent people who get injured or made ill due to their work. There are things that can be done to reduce fraud and inefficiencies in the system without taking unfair advantage of people.

Here in my home state of Illinois, the traditional Workers Compensation system has seen significant reductions in the cost of Workers Compensation claims that were achieved through a combination of medical fee schedules and some other reforms that did not destroy the no-fault Workers Comp system. Illinois employers are seeing real reductions in Workers Comp insurance manual rates, and would likely see further reductions if some common sense insurance reforms were enacted.

Thursday, November 12, 2015

Some Questions Raised Re: Big PEO Workers Comp

Barrett Business Services, Inc.(BBSI) is a very large PEO-Professional Employer Organization, also known as an employee leasing firm. Such companies provide Workers Compensation coverage, among other services, to client companies by means of contractual agreements that make the PEO the "co-employer", at least on paper, of the workers of the client company.

Now come reports that BBSI is under investigation regarding how the company reported certain charges associated with its Workers Compensation costs.

California passed a new law in 2014 that prohibited PEOs from self-insuring their Workers Comp obligations. So BBSI entered into what is known as a fronting arrangement with ACE. A fronting arrangement is one where an insurance company that is licensed to write Workers Comp insurance in a state enters into a behind-the-scenes arrangement, typically with a captive insurer that isn't eligible to write Workers Comp. The fronting insurer issues a policy, but enters into a reinsurance arrangement with the captive so that the fronting insurer isn't responsible for paying claims up to an agreed upon amount. So in the BBSI case, ACE was passing back all claims up to five million dollars.

The investigation isn't whether or not this all was kosher--surprisingly, these arrangements are not unheard of, although insurance regulators really don't have a good handle on the practice. The investigation of BBSI involves the question of whether they violated securities laws requiring providing accurate financial information to investors.

See, that's the weird thing, to me. This whole complicated structure of having a PEO provide WC coverage to thousands and thousands of smaller companies, and to do it by means of a fronting arrangement where the insurance company that everyone thinks if providing coverage really isn't--that all likely is done according to the rules. Which leads me to ask the question--who the heck ever decided that such complicated arrangements were such a good idea?

The answer is that no one decided it, really. The insurance industry figured out how to structure these deals in such a way that the insurance regulators never really had a good idea of what was going on, how widespread the practice has been, and how wobbly some of these houses of cards might be--not until the cards collapse, that is.

Now, in this particular case of BBSI, there is absolutely nothing in the published reports that indicate any wrongdoing. Not yet, at any rate. But this early news report does make me recall other situations involving big PEOs that did turn out to be card-constructed housing units.

Time will tell how this one turns out. Stay tuned.

Thursday, November 5, 2015

Workers Comp "Reform": Babies and Bathwater

In the field of Workers Compensation, employers are understandably and legitimately concerned about the cost of Workers Compensation. Here in my home state of Illinois, for example, employers are often pushed to the wall by the cost of Workers Compensation insurance, and we here at Advanced Insurance Management often get to help them (and other employers all over the U.S. as well) successfully dispute Workers Comp insurance charges that are unwarranted and excessive. On a regular basis, we get to help keep some small employer in business, as they tell us that if they have to pay a recently-received "Shock Audit" for more money than they have, they will have to close their doors. It's always a special professional pleasure to help in those situations.

And in Illinois, our home state, employers are often told that Illinois is too lenient and corrupt when it comes to awarding Workers Comp benefits to workers, and in neighboring Indiana they know how to do things more efficiently and economically, and thus WC rates and insurance premiums are much, much lower there. And its true, Indian has much lower WC insurance rates (and lower benefits) than in Illinois.

I've written about this disparity before, and how much of the difference in costs between Indiana and Illinois are due to wage differences between the states and the much more restrictive benefits rules in Indiana. But now a new article in Slate makes clear the unintended consequences of some of the Workers Comp "reforms" that some employers and insurers advocate for, in the name of reducing claims costs. And those consequences can sometimes be measured in painful deaths and financial ruin for families, particularly if an employer fights a Workers Comp claim in ways both fair and foul.

To be fair, employers have every right in the world to fight for reasonable laws to combat fraudulent or exaggerated Workers Comp claims. Indeed, they have a responsibility to fight against such claims, as they weaken and undermine the entire Workers Comp system. And fraudulent or exaggerated claims are a reality most employers have to deal with, sadly. In response, many states have greatly increased efforts at catching and punishing fraudulent Workers Comp claims, with considerable success.

But I think it can be a terrible mistake to enact "reforms" that leave seriously injured or ill workers without benefit of the laws we have enacted to protect and compensate us all from the risks of occupational injury and illness. And we do not want to remove the financial incentives that currently exist to pressure employers to maintain safe workplaces.

Most employers, in my experience, want to maintain safe workplaces. They understand the need to keep their workers safe from the potential hazards of work. But even with the best of intentions, unexpected things can happen that result in serious claims. And sometimes it can be unclear if a questionable claim has been exaggerated or misrepresented. And, being human, employers (and their insurers) can be prone to sometimes allowing financial interests to cloud their judgement on such things.

That's why I tend to view arbitrary restrictions on Workers Comp claims as often throwing the baby out with the bathwater. The consequences of creating too many hurdles and barriers for those who are injured at work (or who claim to be so injured) can be devastating to people, and often contrary to the long term interests of the employer as well.

I know there are no easy solutions to this--because if there were, we would have done them already. But some of these proposed reforms strike me as just that--easy solutions for complex problems. That usually doesn't end well.

And our Workers Comp system is never going to be perfect, sad to say. But we need to keep in mind that unintended consequences can be powerful and long lasting, and that the unintended consequences of some of the proposed "reforms" to our Workers Compensation systems will be painful death, needless maiming, and financial ruin for decent people. We can do better than that.

Wednesday, November 4, 2015

Pay As You Go Workers Comp From Intuit

Intuit, Inc. has launched an interesting "pay as you go" Workers Compensation insurance service for small employers, utilizing the services of twenty insurance companies. The whole idea of "Pay as you go" WC is to avoid what we call "shock audits", where the annual premium audit generates an unexpectedly large additional premium. Pay as you go uses actual payroll information, rather than an initial estimate. The Intuit service, for instance, uses that company's Quickbooks payroll data to develop WC premium charges in real time.

Of course, these kinds of "pay as you go" programs can only address one cause of Shock Audits--that is, fluctuations in payroll. But payroll isn't the only cause of these painful audits, and pay as you go doesn't address those. Changes in classifications, changes in payroll allocation, or use of uninsured independent contractors can still ambush employers with unexpected bills. But programs like the Intuit service (and Intuit is far from the only provider of this kind of service) can offer small employers access to voluntary market coverage, when so many other sources of WC are focused on larger accounts and leave smaller employers to the mercies of Assigned Risk plans.