While declining workers' compensation rates have benefited employers in recent years, there are challenges that cloud the future. The outlook for 2008 is one of caution and concern.
- Rising costs and utilization of medical treatments. In workers' compensation, alarming increases in utilization of medical services compounds the ever-present negative impact of escalating medical costs. An NCCI study concludes that the key driver is not price but growth in the number of medical treatments. What's more, there is a move to more complex and expensive treatments.
The seismic shifts in medical innovation and the corresponding increase in treatment options coupled with consumer demand for the latest and greatest treatments will continue to propel the spiral of increased utilization in 2008. Unchecked, the combination of these factors means soaring medical costs.
- A sundry of health care standards. California's sweeping legislative reform has been successful in reducing employers' workers' compensation from an average of $6.47 per $100 for coverage in 2003 to $2.93 in the first quarter of 2007. A cornerstone of California's success is the mandated use of the American College of Occupational and Environmental Medicine scientific evidence-based treatment guidelines that enable employers to measure the actual versus expected duration of absence based on the injury and determine whether or not treatment matches the prescribed protocols.
While the efforts in California have been closely watched, only a handful of states have adopted similar extensive reforms. If you're asking why, workers' compensation is a multiplicity of systems governed by the states and there is no mantra to adopt a national model. In a climate of declining rates that fosters lethargy and with unique political obstacles in each state, it is unlikely that state policies will ever converge.
The adoption of evidence-based guidelines will be agonizingly slow. In 2008, many job-related health decisions will continue to be made by health care professionals without appropriate training and expertise in occupational injuries.
- Declining rate cycle to bottom out. The expectation that rates will remain low belies logic. Historically, the workers' compensation price cycle has proven "what goes down, must go up."
All eyes are turned again to California, often a precursor for the nation, where a key insurance industry group is urging the insurance commissioner to recommend a 4.2-percent rate hike in 2008 citing the cost of legal work, fraud investigation and other claims management tasks.
While dramatic rate increases are unlikely, the tide is turning and the days of double-digit percentage rate reductions may well be over.
- Unnecessary loss of skilled workers. The longer employees are out of work, the less likely they are to return. Workers' compensation is beset by unnecessary time lags along the continuum of care — lag time to get doctor's reports, see a specialist, get test results, etc. This prolonged process produces a disability mentality — the employee believes something is seriously wrong.
While studies show that 90 percent to 95 percent of injured employees should be back to work by the fourth day following the injury, nationally 24 percent of workplace injuries result in lost time greater than three days (ManagedComp survey). In effect, the system creates unnecessary disabilities, and there is no evidence that this will change in the coming year.
- Injuries to older workers will continue to cost more. By the year 2012, approximately 20 percent of the workforce will be 55 years or older. While older workers have fewer injuries, the injuries are more costly and workers take longer to recover than do younger employees.
Now is the time to become attuned to the implications of the maturing workforce and implement programs that foster retention and prevent injuries. Without proper planning, this unprecedented growth in the number of aging workers will lead to more serious injuries and increases in workers' compensation costs in the years ahead.
- Drug use — legal and illegal — will continue to plague the workplace. While greater vigilance by employers in the use of drug testing has made inroads, substance abuse remains a daunting problem for the workplace, with alcohol topping the list. Add to this the aggressive advertising by drug manufacturers that has fueled the public's demand for new prescriptions, and the risk of prescription and illegal drugs leading to workplace injuries is considerable.
As sadly demonstrated by the recent controversy surrounding the death of two firefighters in Boston, this is a thorny issue fraught with resistance. If there is to be success, it will depend upon a high level of employee education as well as increased drug testing. This will take time; look for continued problems in 2008.
- Wellness programs require continued commitment. There is little doubt that the lifestyle of the American worker is a threat to productivity. As a result, many employers are implementing wellness programs aimed at encouraging employees to adopt more healthful lifestyles, reduce medical care costs, lower absenteeism and injuries, and boost worker productivity.
Employers are still grappling to understand what particular interventions, programs and incentives yield the greatest return on investment. Privacy and legal issues also continue to be significant concerns.
This noteworthy and beneficial trend will continue in 2008, but the effort needs to be constant — much like the anti-smoking campaigns — in order to be effective.
- The bar will be raised on return-to-work programs. While early and safe return to work is a recognized best practice in workers' compensation, there are still employers who resist transitional work assignments, offer demeaning or make-work jobs or run ineffective programs.
Simply getting the employee back to work is not enough. Employers need to understand and enforce medical restrictions, establish realistic and evidence-based guidelines for the resumption of duties, monitor progress, integrate human resources with risk management, and train employees and supervisors on the value of such programs.
Health care providers have a role, too, by being accountable and becoming an active partner in the return-to-work process, and case managers must work to minimize lag time in treatments and communications. Only those employers who recognize the value of return-to-work in retaining employees, improving productivity and reducing costs will commit the time and resources required. Progress will be made in 2008, but changing attitudes take time and there is much work ahead.
- There will be limited use of technology as a strategic tool for cost containment. Sophisticated Internet tools, software and online access to information are available to help employers quickly respond to injuries, predict claims that are likely to spiral out of control, monitor benchmarks, detect fraud, and improve communication and collaboration between all parties involved in the workers' compensation process.
This requires a change in attitude by agents and employers. Agents can no longer sell workers' compensation insurance, but must become experts and consultants to deliver a full range of injury management services. Employers need to recognize that workers' compensation is not an expense but a controllable business cost that, when managed properly, will have a measurable and positive return on investment.
Clearly, managing workers' compensation costs is not an "on/off" intervention to be used when injuries occur or rates rise, but a never-ending process that encompasses all aspects of the workplace. The few who take charge will change the risk management paradigm in 2008.
Editor's note: Keith Pearsall is president of Business Insurers of the Carolinas, Chapel Hill, North Carolina, one of only 20 Level-5 member agencies of the Institute of WorkComp Professionals. Pearsall, who has 16 years of experience specializing in workers' compensation, is an Accredited Advisor in Insurance, a member of the Independent Insurance Agents of North Carolina and has been designated a Certified WorkComp Advisor by the Institute of WorkComp Professionals.