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Risk Insider: Jason Beans

Workers’ Comp: Like a Nasty Divorce

By: | April 17, 2015 • 4 min read
Jason Beans is the Founder and Chief Executive Officer of Rising Medical Solutions, a medical cost management firm. He has over 20 years of industry experience. He can be reached at [email protected]

I have followed the ProPublica/NPR article series on “The Demolition of Workers’ Comp,” and the subsequent reactions with interest. From the implication that the system is being decimated at the expense of American workers, to various points of disagreement from industry parties, I have found a lot to consider.

ProPublica ignited a debate that is still alive, and one that I felt it prudent to give considerable thought to before weighing in.

One major realization I’ve come to is that workers’ comp cases can be a lot like a nasty divorce.

In the aftermath, there are two households to support and both sides believe the other is “screwing” them. One spouse is certain they are “right” and the other is clearly “wrong.” But the truth, as it so often does, lies in shades of gray.

I think this is where we find ourselves in the ProPublica debate.

In workers’ comp, employers often have to cover massive costs, typically for a person who is no longer working or producing. The injured worker does not have the same earning power or quality of life.

Nothing the insurer can do will take away the fact that someone has lost a limb or is a quadriplegic. The story is a sad one, no matter what the outcome.

If we can help 10 injured workers have a better life, but cost thousands of U.S. jobs, have we done a good or bad thing for society?

To be frank, when I began reading the ProPublica report, my initial reaction was that it likely amounted to sensationalism masquerading as journalism. There are some well-founded points, though we do everyone a disservice — injured workers, employers, and insurers alike — if we do not look past the anecdotes to the tough questions.

As in a nasty divorce, it is tempting to point fingers and place blame. But if we want to truly understand the realities of workers’ comp today, we must resist the urge to oversimplify.

If you’ve been following all of the punches and counter-punches, then you know significant attention has been given to ProPublica’s use or misuse of statistics. So instead I will touch on some of the other issues raised but in a much broader context.

The Costs of Competition

Workers’ comp does not function in a vacuum, it operates in a national and global free market system. The cost of labor is a major factor in this system and determines where companies hire and expand.

In a global economy, every state and country compete to see if the job can be done better, faster, cheaper. Additionally, labor markets are increasingly competing with robotics and automation.

That means every action has a reaction, and that includes consequences for every increase in workers’ compensation costs and benefits.

If we can help 10 injured workers have a better life, but cost thousands of U.S. jobs, have we done a good or bad thing for society? We have to consider the larger price we may pay for the decisions we make today.

Consider, too, that if employers and insurers cease to turn a profit, they cease to exist.

The ProPublica article contends that worker’s comp reforms are being driven by employers seeking to increase profits. Any dubious math aside, it is important to understand that in insurance, some measure of profitability has more to do with market forces than with work comp laws. Massive amounts of capital are needed to underwrite insurance, and the majority of that capital rests with reinsurers.

Reinsurers invest wherever the risk is lowest and the returns are highest. Higher risk/lower return investments (such as workers’ compensation in U.S. states) will see less capital, subsequently driving prices up, while low risk/high return markets will see a flood of capital that drives prices down.

Overall, insurance profitability must match the market’s profitability or we will have no insurance. What then?

Don’t Oversimplify … or Overcomplicate … Comp

We face tough decisions with no perfect answers in workers’ comp. For example, when a carrier underwrites workers’ compensation, their liability is unknown. Cases from the 1950’s are still open.

There is no way to predict medical improvements. A prosthesis might have been all that was available when a carrier wrote a policy fifty years ago. Now they are expected to cover a robotic limb that can cost hundreds of thousands of dollars. Is that fair? It’s not a simple issue.

Overall, insurance profitability must match the market’s profitability or we will have no insurance. What then?

We as an industry can also complicate matters by tripping over dollars to save pennies. This is devastating to workers and, over time, the payers’ bottom line.

The best payers I have seen jump to take care of injured employees. When you do everything possible to help workers get to pre-injury status or maximum improvement, it’s pretty easy to identify the frauds.

Really, there are two choices in claims management. Distrust everyone until they prove they are legitimate, or assume they are legitimate until they prove otherwise — the latter produces better results.

Despite ProPublica’s implications to the contrary, the vast majority of people I know in workers’ comp are well-intentioned, want the best for injured workers, and want a system that supports them. But we face challenges, and how we address these difficult issues will have far-reaching, even global, ripple effects for employees, employment rates, employers and carriers alike.

We have to approach the tough questions — and answers — we face with the understanding that things are never simply black or white, and reaching solutions often lies in the shades of gray.

Kind of like a good marriage.

More from Risk & Insurance

More from Risk & Insurance

Black Swans

Black Swans: Yes, It Can Happen Here

In this year's Black Swan coverage, we focus on two events: An Atlantic mega-tsunami which would wipe out the East Coast and a killer global pandemic.
By: | July 30, 2018 • 2 min read

One of the most difficult phrases to digest without becoming frustrated or judgmental is the oft-repeated, “I never thought that could happen here.”

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Most painfully, we hear it time and time again in the aftermath of the mass school shootings that terrorize this country. Shocked parents and neighbors, viewing the carnage, voice that they can’t believe this happened in their neighborhood.

Not to be mean, but why couldn’t it happen in your neighborhood?

So it is with Black Swans, a phrase describing unforeseen events, made famous by the former trader and acerbic critic of academia Nassim Nicholas Taleb.

We at Risk & Insurance® define these events in insurance terms by saying that they are highly infrequent, yet could cause massive damages. This year, for our annual Black Swan issue, we present two very different scenarios, both of which would leave mass devastation in their wake.

A Mega-Tsunami Is Coming; Can the East Coast Even Prepare?, written by staff writer Autumn Heisler, profiles an Atlantic mega-tsunami, which would wipe out lives and commerce along the East Coast.

On the topic of whether the volcanic island of La Palma, the most northwestern of the Canary Islands, could erupt, split and trigger an Atlantic mega-tsunami, scientists are divided.

Researchers Steven Ward, a geophysicist at UC Santa Cruz, and Simon Day of University College London, say such a thing could happen. Other scientists say Day and Ward are dead wrong; it’s an impossibility.

One of the counter-arguments is backed up by the statement that there has never been an Atlantic mega-tsunami. It’s never happened before and thus, could never happen here. See exhibit “A” above, re: mass school shootings.

Viral Fear: How a Global Pandemic Kills an Economy, written by associate editor Katie Dwyer, depicts a killer global pandemic the likes of which hasn’t been seen in a century.

Tens of millions of people died during the Spanish Flu outbreak of 1918.

Why it could happen again includes the fact that it’s happened before. The science on influenzas, which are constantly mutating, also supports just how dangerous a threat they pose to millions of people beyond the reach of antibiotics.

Should a mutating avian flu, for example, spread widely, we could see a 10 percent drop in GDP, mostly from non-physical business interruption.

As always here, the purpose is to do exactly what insurance modelers and underwriters do; no matter how massive the event, we create scenarios, quantify possible losses and discuss risk mitigation strategies. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]