Risk Scenario

No Way Out

A dream risk management team for a national retailer is not as prepared for the impact of the Affordable Care Act as they thought.
By: | August 28, 2013
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Part One

Marti Bevans, the senior human resources officer for the cutting-edge furniture retailer Purple Sage, stopped at the door to the conference room and did a brief breathing and meditation exercise. She needed just a few seconds to clear her mind before this conference call.


Calmed, Marti entered the room and flashed a smile at her co-workers. She liked these people.

“Hey Marti,” said Peter Hedges, the company’s director of safety.

“Hey Peter, hey Randy, hey Stuart,” Marti said, addressing the company’s safety director, risk manager and CFO in turn.

Marti plunked down in her chair and smiled again at the group. They smiled back.

These were good times for the leaders of Purple Sage, the furniture retailer that had astonished the competition by building solid customer loyalty and a brimming bottom line in the space of what seemed like a short 10 years.

The company’s emphasis on natural fibers, sustainably harvested timber and fair trade labor practices had served it well. The company was now, in early 2010, publicly traded and operating in all 50 states.

In her fellow risk management team members, Marti was flanked by Big Ten school graduates like herself, professionals in their late 30s and early 40s who had carved out their niche, building rewarding careers and comfortable upper-middle-class lifestyles.

“Well, shall we do this?” the CFO, Stuart Rhoads, said, as he glanced at a sheet of paper in front of him and started dialing the phone for the conference call.

“Let’s do it,” Marti and Randy said in tandem, their timing setting off a good natured group giggle.

The purpose of the conference call was to connect with the company’s workers’ compensation risk management consultant, Dan Brickner.

Dan wasted no time getting to the point.

“As you may know,” he said, “it looks like President Obama is going to be successful in pushing through this Affordable Care Act.”

“It looks like it,” Stuart said.

“Over here we’re thinking there’s no way this act isn’t going to have a negative impact on workers’ compensation costs,” Dan said.

“Why?” Randy said.


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“You’ve got 30 million more people coming into the system, which is eventually going to mean serious delays in getting access to primary care physicians. That’s going to lead to higher costs due to treatment delays, potentially much higher costs, we think.”

“Hmmm,” Randy said as he looked over at Stuart, who registered almost no reaction.

“We’re starting to talk to clients about whether they might not want to invest in better coordination of care,” Dan said.

“Meaning?” Marti said.

“Meaning organizing provider networks, starting up wellness programs, taking some measures to circumvent these treatment delays and higher costs we see coming,” Dan said.

Marti could register the resistance in Randy and Stuart. It was that palpable.

Stuart tapped the mute button.

“Gee, I wonder what he’s driving at here, other than about $3 million in investment and a barrel-full of fees for him,” Stuart said wryly to those at the table, then tapped the mute button off.

The call ended. The Purple Sage risk management team wasn’t sold.

The company’s group health care arrangement was working like a dream, with low single-digit increases in workers’ premiums over the past five years. Purple Sage’s mostly younger warehouse and retail operation staff were not big users of health care.

“I don’t know about you guys, but don’t you get a little tired of all the fear mongering and Tea Party paranoia around health care reform?” Marti said.

“I wish the networks would give it a break,” Peter said as the group filed out of the conference room.

Part Two

That was in early 2010. By late 2015, Purple Sage had issues.

The risk manager, Randy Scharf, came to the risk management team with some disturbing first-half numbers.

R12-13p46-47_Scenario.indd“I’d like to direct your attention to page three,” Randy told the group as they assembled around the conference table.

“We’re looking at a 15 percent jump in our workers’ compensation claims costs in California in the first two quarters,” Randy said.

“But isn’t California always a problem?” Stuart said.

“Yeah, but we had it under control and now this,” Randy said.

“Not to toot my own horn, but we just haven’t seen this kind of jump anywhere since I’ve been here,” he added.

Peter had been working on some new safety protocols for about 18 months. The team decided then and there to put them into place in two key California distribution centers, Hayward in the north and Diamond Bar in the south.

Marti would work in conjunction with Peter and Randy to drill the changes into the two locations.

“You guys have my full trust. I know you can do this,” Stuart said.

“I know we can, too,” Marti said.


The Purple Sage team was not accustomed to losing. But now it was beginning to get unsettled.

Injury stats in California were being whittled down slightly due to the diligent efforts of Marti, Randy and Peter. But overall cost of claims there weren’t budging. Then Randy soon brought more bad news.

“I direct your attention to page six,” Randy said as the risk management team met in early 2016.

“Okay…” Stuart said and everyone could hear the lack of patience in his voice.

“We’re seeing workers’ compensation cost increases in Florida, New York and Illinois now as well as California,” Randy said.

“Double digits,” Stuart said, reading the numbers in front of him.

The team got on the phone with Dan Brickner the following day.

“We need some analytics help,” Randy told Dan.

“I’ll get right on it,” Dan said. “Let me ask you something. Have you given any further thought to what I mentioned a while back?”

“Remind me,” Stuart said, sounding fatigued.

“At the time I was talking about some broad health advocacy measures. Looking into creating your own provider network, getting a corporate-wide wellness program in place,” Dan said.

But as Stuart watched his company’s workers’ compensation costs climbing, pouring more money into human resources was the last thing on his mind.

“Don’t think we can win that fight,” Randy texted Dan privately after the meeting.

Part Three

By the time Dan Brickner came back with his analysis of Purple Sage’s workers’ compensation cost increases in Florida, Illinois, New York and California, it was too late.

The story of Allegra Faschione, a Purple Sage retail employee in San Jose, said it all.


Allegra injured her wrist moving a loveseat in the company’s San Jose store and called her primary care doctor in late June of 2015 to set up an appointment.

“What’s the matter hon’?” the doctor’s receptionist said.

“I’ve got a pain in my wrist,” Allegra said.

“Where did you hurt it?” the receptionist said.

“At work,” Allegra said.

“Is there anyone there who can see you?” the receptionist said. “Because the earliest we can get you in here is September.”

“September! What am I gonna do?” Allegra said.

“You better go to the emergency room,” her husband said.

Allegra went to the emergency room, which drove the cost of her initial visit up by a factor of 200. Now multiply that by another couple of hundred as her story was repeated by workers in Florida, Illinois, New York, and then some months later in Georgia, North Carolina, New Jersey and Pennsylvania.

In every one of those states the story was similar. Not only were primary care physicians swamped, but access to diagnostic testing was becoming next to impossible. Average disability durations in some states had tripled or even quadrupled.

The next time Dan Brickner addressed anyone at Purple Sage it was face to face and the CEO was in the room along with the risk management committee.

“All right, what are we looking at here?” the normally affable, upbeat CEO said.

“I’m recommending that you increase your workers’ compensation loss reserves substantially for 2017,” Brickner said.

“By how much?” the CEO said, looking at Stuart.

“We need to go from $3 million to about $9 million,” Stuart said.

“Goodbye margin,” the CEO said.

There was an uncomfortable pause.


There was an even longer pause.

“Bottom line is that we are seeing treatment delays due to Obamacare,” Randy said.

“You know we’ve got an earnings call in six weeks. You expect me to go on there and tell the analysts we didn’t see that coming?” the CEO said and there was practically steam coming out of his ears.

Nobody else said anything.

The CEO turned to Stuart as he stood up abruptly.

“How about you tell them that Stuart!” the CEO said angrily and walked out of the room.

Stuart looked to the rest of them.

Dan Brickner just straightened his tie.


A seemingly can’t-miss national retailer winds up getting snared in increased workers’ compensation costs due to the implementation of national healthcare reform. The advice of a risk management consultant to create provider networks and better coordination of care goes unheeded, leading to double digit increases in costs of claims in multiple states for the retailer.

1. Enroll in a quality care network: The days of joining a medical network for PPO discounts alone have passed. Through careful selection of medical providers that have been proven to deliver top-notch healthcare at reasonable rates, employers can better position themselves (and their injured workers) for timely, successful outcomes. Close partnerships between network providers, employers and payers will help avoid the treatment delays that are expected to come with healthcare reform.

2. Risk management program goals: We know companies that provide national risk management and claims adjustment services can have varying strengths. For a service provider to produce the best results, it must be able to integrate data with risk management goals, and focus on communication and collaboration – internally, as well as with medical providers, the employer and injured workers.

3. Wellness first: With what is widely perceived to be an impending backlog of medical services due to the implementation of healthcare reform, corporate wellness programs are taking on more importance than they ever did before. Reducing co-morbidities like diabetes and obesity before an injury occurs has never been more vital than it is right now.

4. Early attention, lower costs: The key theme of this scenario is that delays in getting injured workers the treatment they need is going to have devastating consequences, not only for the injured workers but for the financial health of the companies they work for. Early planning will reduce risk exposure and the impact on access to care.

5. Take it to the top: Success in managing healthcare and workers’ compensation costs is going to require top-down involvement. Risk managers and benefits administrators have a vested interest in offering a consistent healthcare approach for employees, focused on quality care and wellness. Sharing health care data trends and capitalizing on opportunities to improve costs across the organization is important to the bottom line. Getting the resources needed and buy-in from the top level of management is imperative.

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

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