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Reworking workers’ comp: On 100th anniversary of system, states focusing on changes that cut business costs, remove uncertainties

by Laura Tomaka ~ November 2011 ~ PDF of Stateline Midwest article here »
For 100 years, employees injured on the job have been provided guarantees through state workers’ compensation systems that cover the cost of medical and rehabilitation services, as well as lost wages.

In return for carrying this mandatory insurance, employers are protected from potentially costly lawsuits.
But have the systems themselves become too costly for business and inefficient?
For states and their elected officials, it is an important question to answer during a period when the competition for business is high and a premium has been placed on rooting out fraud and waste in government-run programs.
The result has been a flurry of activity on the century anniversary of state workers’ compensation systems.
This year, according to the American Insurance Association, six U.S. states have already made significant changes to their systems, including Illinois and Kansas in the Midwest. Proposed reforms were also advancing in Michigan in November and are expected to be a priority of Ohio legislators in 2012.
In each state, proponents of the legislative changes have used at least one common theme: the need to create a more business-friendly climate.
“It’s not a good situation when your state has the highest workers’ compensation costs in the country, or even if you’re in the top 10,” says Doug Whitley, president of the Illinois Chamber of Commerce.
Illinois adopts reforms on final day of spring session
Illinois has found itself in just that position: A national study conducted by the state of Oregon showed that Illinois’ workers’ compensation premiums were 149 percent higher than the U.S. median in 2010, and the third most expensive in the nation.
In previous sessions, bills to change Illinois’ system — and better control costs — had been introduced but failed to advance.
This year, with the Illinois economy sputtering and recent partisan changes in the legislature (Republicans picked up seats in the 2010 elections), the political climate in the state was right for carrying out systemic reform. On the final day of the spring session, the General Assembly passed HB 1698; it was signed into law in June.
“This is the most significant reform of the workers’ comp system that’s occurred in the state of Illinois in years, possibly in its history,” says Democratic Rep. John Bradley, sponsor of the bill and chair of the House Labor Committee and the Workers’ Compensation Subcommittee.
“[It] is already providing significant savings for Illinois businesses.”
HB 1698 cuts medical rates, sets new standards for determining a disability, and sets in place new safeguards against fraud and abuse.
The major cost-saving measure is a provision that reduces medical fees paid for the treatment of work-related injuries by 30 percent. Supporters of the bill have estimated that this change will reduce annual expenses by up to $700 million.

According to Bradley, other key provisions include:
• Requiring physicians to use the American Medical Association’s “Guides to Evaluation of Permanent Impairment” when evaluating the level of impairment in workers’ compensation claims.
• Creating a network of medical providers to deal with claims in order to prevent “doctor shopping.”
• Reducing the benefit period for carpal tunnel injuries from 40 weeks to 28 weeks.
• Shifting the burden of proof from the employer to workers in proving whether alcohol or drugs were a contributing factor in an accident.
• Restructuring the state’s Workers’ Compensation Commission and how the system’s arbitrators are selected.
According to Whitley, though, there was one critical piece missing from the legislation: changing the threshold for determining whether an injury was work-related. Whitley says Illinois’ low threshold for causation makes it nearly impossible to deny a workers’ compensation claim.
“Did they make progress? Yes. Did they make adjustments that needed to be made? Yes. But did they bring about significant reform to the point that Illinois’ standing vis-à-vis all the other states in the country is going to change? I think not,” Whitley concludes.
But Bradley says only time will tell how effective the reforms are in lowering costs. He notes that initial indicators predict, at minimum, a 9 percent rate reduction for employers.
“I think we reached a balance in that a legitimately injured worker can still receive fair compensation in Illinois, but businesses, on average and on the whole, will be provided with significant savings,” he says.
In Kansas, bipartisan agreement aims to bring more ‘predictability’
Establishing that balance was also the driving force behind recent reforms enacted by the Kansas Legislature.
The passage of HB 2134 marked the first reform of the system since 1993. Over that 18-year period, several state Supreme Court decisions in Kansas had led to much uncertainty in the workers’ compensation system and to discontent among employers and employees alike.
“Business and labor threw up their hands and decided we needed some changes that would be fairer to both sides,” says Republican Sen. Julia Lynn, vice chair of the Senate Commerce Committee.
The result was a compromise measure that had the backing of both sides and that received bipartisan support in the Legislature.
“We worked out something that really went beyond party affiliation,” says Lynn. “When you consider the totality of what our bill does, it evens the playing field between employee and employer.”
For workers, benefits for those injured, permanently disabled or killed on the job were increased.
For businesses, there were provisions addressing the issue of causation: Employers will be given a credit for a worker’s pre-existing conditions and will pay only for injuries that occur on the job.
The new law also changes how a work-related disability is calculated. For example, it defines the level of functional impairment necessary in order to make a claim for work disability.
Under the bill, too, employees must make a good-faith effort to return to a job after a work-related injury — a provision added in direct response to a court decision that had essentially removed this requirement.
Lynn says business and labor backed the bill not only because it was fair, but because it removed frustrating ambiguities in the current system — from the process used, to the definitions of injuries and compensation, to the expectations of employers and injured workers.
“There’s not a whole lot of room for interpretation” with the new law, she says.
“When we’re trying to create jobs and improve business growth and the business environment in Kansas, we can point to this law,” Lynn adds. “We have a fine-tuned law that makes it predictable for business, and it’s that predictability that is so important in this economy.”
Michigan could become third Midwest state to adopt workers’ comp reform
Michigan Republican Rep. Brad Jacobsen tells a similar story about how the workers’ compensation system has evolved in his state. It has become a source of confusion for all parties involved with it, he says.
His legislation, HB 5002, is an attempt to modernize the system by codifying a number of Supreme Court decisions made over the past two decades. (As of early November, the legislation had been passed by the House and sent to the Senate for consideration.)
“We’ve had numerous lawsuits trying to reinterpret the case law and the court rulings,” Jacobson says. “Hopefully, if those are implemented into statute, there won’t be as many lawsuits, and the process will be faster and more cost-effective.”
The system has not been changed in nearly 25 years, Jacobsen says, and that has resulted in a mismatch between the statute and the state of medical technology. For example, the law does not account for advances that allow workers to return to work after joint replacement and reconstructive surgery.
“The case law is pretty much there; we’re just putting it into statute that once an injured worker is able to return to work, they are required to seek a position,” Jacobsen says.
Supporters of the bill point to several other provisions as well:
• increasing the duration of the time the employer controls treatment of medical care immediately after the injury, from 10 days to 45 days, to ensure a prompt return to work when possible;
• strengthening requirements that workers seek new employment (they must make a good-faith effort to find a job);
• addressing business concerns about causation by giving consideration of pre-existing conditions in determining benefit payments; and
• clarifying that benefits for a mental disability can only be paid if it comes from actual events of employment, not “unfounded perceptions.”

Opponents, though, have criticized the bill as much more than a modernization, but as a measure that will reduce benefits to workers — thus putting the burden of caring for injured or disabled workers more on taxpayers.
In October testimony before a House committee, John Braden, an expert on the state’s workers’ compensation law, gave the example of a worker suffering from disabling back pain and a bulged disc — a common workers’ compensation case. Could that individual prove that work caused the injury?
Without pre-injury tests on the worker’s back (which are unlikely to have been done), proving the causal relationship becomes difficult, Braden said. He says under the proposed changes under HB 5002, the worker would be denied wage-loss benefits (despite not being able to work) as well as the medical payments to repair the bulged disc.
According to Braden, the bill also has new ways of defining or calculating “wage-earning capacity,” “disability” and “wage loss” that will make it more difficult for workers to prove they are entitled to economic and medical benefits.
Under the bill, an employee would have to prove that a work-related injury prevents him or her from performing all jobs within his or her qualifications or training, not just jobs he or she has actually performed. If the injury does not prevent such employment, the worker would have to demonstrate a good-faith effort to secure one of these jobs.
“I think some of the opposition to the changes think that we are ready to throw people out to the wolves, Jacobsen says, “and that’s certainly not the case.”
What he does want to do is encourage individuals to return to work when possible. For example, the bill spells out that if a worker returns to a lesser-paying job, he or she would earn the new wage plus 80 percent of the wage differential.
“If we can get people back to work quicker, require them to take a position and pay them the difference, that should lower the cost for the workers’ comp carriers and thus then save businesses some money,” Jacobsen says.
And driving down these costs, he adds, will make the state a more attractive place for business.