The Future of Workers Compensation Claim Systems
Christopher Mandel | September 27, 2019
Systems designed to address and administer employee injuries have played a substantive role as part of our social safety net for over a century. Originally labeled the "grand bargain," untold millions of injured workers have relied on the system's reliability to underpin their recovery from on-the-job injuries.
This "bargain," and the generally similar design of statutory workers compensation systems (unique to each US state) have persisted and served employers and their injured employees well even in the midst of significant social and economic crisis and change, technological evolutions, conflict, and peacetime and other forces that can disrupt system effectiveness. The vast majority of injured workers have received fair treatment, were compensated equitably, and returned to productive employment, all enabled by reasonably balanced and effective systems.
At times, the status of the workers compensation system reflects various states of ineffectiveness or imbalance, despite the systems general stability and reliability. System effectiveness is often a matter of opinion, but generally can be defined as systems that do the following.
- Produce a reasonable trade-off between costs and benefits
- Enable the injured party to return to productive work within reasonable times
- Provide fair compensation during their disability
- Ensure the provision of quality professional care appropriate to the injury
When a systemic imbalance occurs, the response has typically been an attempt to incorporate incremental attempts at reform, which have varying degrees of success.
Whether in or out of balance, the workers compensation "industry" is subject to change by the actions of disruptive catalysts, some of which are outside the control of stakeholders. This perspective is explored further in a new book by Dr. Richard Victor, founder and retired CEO of the Worker's Compensation Institute, a leading research authority on industrial injury trends research for over 30 years. The book is titled Scenarios for the 2030s: Threats and Opportunities for Workers' Compensation Systems and explores several major catalysts for change to workers compensation systems that, by 2030, may impact the sufficiency of benefits against a backdrop of radical cost increases.
Based on deep and broad research that includes extensive empirical evidence for his predictions, Dr. Victor's book examines questions like the following.
- Is there a feasible scenario where many state workers compensation systems become seriously out of balance in 2030 and where the workers compensation reform process is unable to restore a reasonable balance as they have in the past?
- What are the potential causes of an imbalanced system or systems?
- Will the workers compensation reform process be unable to deliver effective solutions over the coming period? If so, why?
- How could these systems change and what could replace them if enough dysfunction emerges?
The Central Scenario: Trouble in Paradise
The central scenario outlined in the book reads as follows: workers compensation costs are set to triple from 2016 through 2030, with no real change in benefits to injured workers. As a result, and with other drivers impacting the system, both employers and worker advocates agree that the system will likely grow seriously out of balance. Despite applying the historical approach to system reforms, both legislative and regulatory, too many large workers compensation systems remain ineffective.
One of the more provocative predictions of the book is the reversal of over 100 years of declining workers compensation frequency. This long-term trend is what most risk managers have hung their hat on with management, as these declines were proof of successful safety and loss-prevention interventions. Yet, Dr. Victor's prediction of a 23 percent increase in frequency by 2030 flies in the face of our historical experience and the view that we could squeeze frequency, and severity, even further. While some target "zero lost-time claims" as aspirational, few have attained this, and perhaps fewer believed it was even possible. Regardless, the long-term view was that costs would continue to decline even as radical shifts in job types and responsibilities are expected to continue due to digitization in the world of work.
While the drivers of this scenario are largely outside of the control of workers compensation systems, they are real, and their potential to disrupt this important provision of services to injured workers could cause significant dysfunction. These drivers include the following.
- Demographic change driven by retiring baby boomers creating historic labor shortages
- Evolving immigration policies and practices that worsen labor shortages
- Technology mitigating the labor shortages to a moderate extent, but not nearly as much as pundits would suggest
- Healthcare reform significantly increasing the number of cases shifted to workers compensation from other payers
- Congress's approach to the solvency crisis in the Social Security Disability Insurance (SSDI) program, causing workers compensation costs to escalate
The historical reform process would have typically moved the systems toward improvements, producing something that could be viewed as more balanced. However, in the 2030 scenario, this does not occur, since the large cost increases arise from causes outside the control of the workers compensation systems. In addition, Dr. Victor believes that our political institutions may continue to struggle to solve increasingly complex policy problems.
As the scenario continues, potential solutions ultimately come from a political paradigm shift that emerges in the late 2020s shaped by the possibility of the following.
- Widespread fiscal distress at many levels of government
- Increased global competitive pressures on US employers
- Widespread loss of confidence in government as a pragmatic problem solver
- The increased influence of millennial and postmillennial voters fed up with the problems they view as laid on them by previous generations
Together, these predicted catalysts create the opportunity to think differently about many public policy problems, including caring for and compensating injured workers. However, three strategic threats that could exacerbate the challenges to the system include the following.
- Increased reliance on nongovernmental solutions to complex problems
- A political drive to eliminate "unnecessary" costs in order to deal with forecasted massive tax increases
- The need to eliminate growing case-shifting to workers compensation from nonoccupational health systems
Only time will tell how impactful these threats will be. Meanwhile, several policy proposals that could shift this paradigm back toward a more balanced system include the following.
- Improving the interaction of workers compensation and Social Security disability insurance
- Improving the Social Security administration's ability to identify recipients whose benefits should be reduced under the workers compensation offset
- Requiring all states to have the typical offset provision
- Instituting a requirement for SSDI set-asides for workers compensation indemnity benefits analogous to the set-asides for Medicare
- Applying federal standards for state workers compensation programs
Each of these has both political and legislative process landmines associated with them, and thus their levels of success or application are hard to predict.
The Paradigm Shifts in the 2030s
This book explores several options that could ameliorate some of the predicted impacts, none of which represent perfect solutions. Dr. Victor raises several strategic questions for the system and its stakeholders that at least provide us the opportunity to think deeply about the possible magnitude of the problem and to entertain solutions that could drive a different endgame than that of the "scenario." Among these strategic questions are the following.
- Can the current mélange of state workers compensation systems avoid the large cost increases driven by these external forces?
- Can workers compensation reform prevent cost increases from these external forces?
- Are major structural reforms to workers compensation programs inevitable?
Dr. Victor concludes the book by opining that the preparation and response to these issues will be best addressed through innovative and timely thinking. He believes that those who employ these approaches will likely have a competitive advantage in a system that serves a critical purpose in society for the smooth functioning of the American economy. Therefore, ensuring that those injured on the job believe that their employers care, that the providers do their jobs well, and that the regulators target system balance as the outgrowth of their work are all paramount to the perpetuation of a critically important set of systems, which must make these goals their priority.
The book Scenarios for the 2030s: Threats and Opportunities for Workers' Compensation Systems will be available this fall at SedgwickInstitute.com. Dr. Richard Victor is a senior fellow of the Sedgwick Institute. Find out more about Sedgwick Institute by visiting www.sedgwickinstitute.com.
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