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Risk Insider: Bill Minick

Cost Shifting: Candy Stores and Scapegoats

By: | June 15, 2016 • 3 min read
Bill Minick is president of PartnerSource, a risk management consulting firm specializing in workers’ compensation alternatives. He can be reached at [email protected]

Listening to a workers’ compensation insurance company trade group at a conference these days is like watching a kid in a candy store. They are so very happy and excited about the opportunity to deflect their own industry’s shortcomings to the evil “Option” to workers’ compensation.

Carefully avoiding any discussion of comparative data, they cast allegations of Option program operations and results that often have no factual or legal support.

A favored treat says that Option injury benefit plans shift costs to government programs more than workers’ compensation systems. Professor John Burton and others continue to point to fiscal challenges for the Social Security Disability Insurance (SSDI) Trust Fund due to (1) the shifting of responsibilities (i.e., “coordination of benefits”) from workers’ compensation, and (2) inadequate workers’ comp cash benefits.

However, this wide-scale, data-proven problem of cost-shifting within workers’ compensation systems has not been demonstrated within Option injury benefit programs.

In fact:

As confirmed by an independent, former NCCI actuary in the review of more than 160,000 claims over a 10-year period, Option programs have a shorter average duration of disability, and both the initial and sustained return to work rates are much higher.

Until these fundamental, systemic failures to reasonably cooperate and practice evidence-based medicine are addressed, meaningful progress on cost-shifting by workers’ compensation to SSDI will not occur.

Also relevant is the fact that many (including almost all large) Option employer programs pay wage replacement benefits from the first day of disability, at a higher percentage of pay, and with no weekly dollar cap. This is far more generous than workers’ compensation systems.

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Recent trends also show the percentage of disability benefits in Option programs to be increasing, moving from 85 percent up to 90 percent or 100 percent of pre-injury pay.

Lastly, Option employers are now rallying behind injury benefit plan provisions making clear that benefits will not be reduced by or coordinated with benefits from government programs, such as social security disability or survivor benefits. Such changes are easy to make when any coordination of benefits with government programs has rarely occurred.

This ability of Option programs to bear more of the direct costs of occupational injury is the result of requiring more employee and medical provider accountability.

Workers’ compensation systems could also better address SSDI’s cost-shifting concerns if state legislatures would seriously consider the toll taken upon injured workers and the economy by:

  • Late reporting of known accidents and injuries
  • Delays and a lack of persistence in medical treatment
  • Failures to follow medical provider treatment instructions, and
  • Medical providers who do not obtain a comprehensive medical history, do not perform an adequate physical examination, do not review current and past diagnostic tests and imaging, and instead rely on speculative reasoning.

Until these fundamental, systemic failures to reasonably cooperate and practice evidence-based medicine are addressed, meaningful progress on cost-shifting by workers’ compensation to SSDI will not occur.

Instead, we will continue to see workers’ compensation insurance company trade groups (supported by some regulators and trial lawyers) search for scapegoats, while Option program sponsors emphasize the more common-sense pursuit of better medical outcomes and a higher level of social responsibility.

More from Risk & Insurance

More from Risk & Insurance

Risk Focus: Workers' Comp

Do You Have Employees or Gig Workers?

The number of gig economy workers is growing in the U.S. But their classification as contractors leaves many without workers’ comp, unemployment protection or other benefits.
By: and | July 30, 2018 • 5 min read

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

A Legislative Movement

Misclassification of workers as independent contractors introduces risks to both employers and workers, said Matt Zender, vice president, workers’ compensation product manager, AmTrust.

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered.”

Misclassifying workers opens a “Pandora’s box” for employers, said Richard R. Meneghello, partner, Fisher Phillips.

Issues include tax liabilities, claims for minimum wage and overtime violations, workers’ comp benefits, civil labor law rights and wrongful termination suits.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Matt Zender, vice president, workers’ compensation product manager, AmTrust

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage.  Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

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Senator Mark Warner (D. VA) introduced the Portable Benefits for Independent Workers Pilot Program Act for the study of portable benefits, and Congresswoman Suzan DelBene (D. WA) introduced a House companion bill.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]