Constant vigilance needed in workers comp

Rough Notes, Feb 1998 by Pillsbury, Dennis

Although results have improved dramatically, current trends indicate that risk managers need to remain ever-watchful of their workers compensation experience, Dwight Davis told attendees of the Sixth Annual National Workers Compensation & Disability Conference. The conference was sponsored by LRP Publications, publishers of Risk & Insurance and Human Resources Executive magazines among others.

The strong interest in continuous improvement in the workers comp arena was clearly evidenced by the fact that this conference has grown dramatically each year to reach more than 2,000 people in attendance at this year's conference in Chicago. And with temperatures hovering in the 20s accompanied by the city's famous wind, it was clear that it wasn't the weather that brought them to the conference.

Davis, president and chief operating officer of Wausau Insurance Companies, discussed "2001: A Comp Odyssey- Cutting-Edge Trends for the New Century." He set the stage by pointing out that, although workers comp is currently enjoying good results, the trends now are headed in the wrong direction. The combined ratio in comp stood at 102.0 at the end of 1996, up from 97.0 the year before. This uptick follows four consecutive years of improvement as combined ratios fell from a high of 122.6 in 1991.

Medical inflation, which has been moving down since 1990 to approach the general rate of inflation in 1996, now is starting to creep up, according to the Bureau of Labor Statistics.

Another major trend Davis cited was the aging of the baby boomers. The result of this is that "boomers will increase disability costs 37% over the next 10 years," Davis noted. Currently, disability costs are escalating two times faster than wages, with direct disability costs averaging between 8% and 12% of payroll. He added that the current cost of medically related work absences is more than $200 million per year.

Other trends that are having a strong impact on the workers compensation system include mounting pressure by government to regulate the workplace, increasing restriction on medical records, and the erosion of the exclusive remedy doctrine.

With these factors setting the stage, Davis said, the mission now is "to redefine workers compensation to reduce medical claim costs and indemnity losses by promoting employee safety, injury prevention, and prompt access to quality, appropriate medical care." He went on to say that integrated disability management (IDM), combining disability management and claims administration for occupational and non-occupational injuries and illnesses represented the best way to achieve this mission and predicted that "by the year 2001, thousands of U.S. employers will have more sophisticated IDM programs in place which will improve productivity, profitability and the health status of employees."

Davis said the key success factors in creating an IDM program include a coordinated team approach that spans the continuum from loss prevention through disability management; single source reporting and claim administration; open communication among employee, employer, case manager and caregiver; coordinated data collection and tracking of claims; and a focus on returning injured or ill employees to work.

He went on to point out that the problem in creating a successful IDM program can be summed up simply. "When you've seen one IDM program, you've seen one!" he quipped. IDM programs, to be successful, must reflect the unique culture and circumstances of the company instituting the program. He offered a series of key questions that risk managers need to ask themselves when setting up their own program:

* How will it improve return-to- work results?

* How does it increase productivity?

* How does it minimize administrative redundancies?

* Does it eliminate dual/overlapping coverages?

* How does it reduce employee confusion?

* Will it integrate data to help you make better decisions?

Davis said that risk managers need to expect positive answers to each of the questions from their workers compensation providers and added one more: "Will your service provider put fees at risk with performance guarantees?" He said that risk managers should expect their service providers to offer guarantees that relate payment to performance.

Davis added that, despite the seemingly insurmountable problems indicated by the trends affecting the workers compensation industry, he was optimistic about the future. He concluded with a quote from John Gardner: "We are all continually faced with a series of great opportunities, brilliantly disguised as insoluble problems."