An impossible dream?

An impossible dream?

Despite management's best efforts to reduce the frequency and severity of accidents in the workplace, workers compensation premiums continue to escalate. In a few states, notably Florida, Texas and California, the voluntary market for workers compensation coverage is almost non-existent. Shippers and carriers have been especially vulnerable to both severe premium increases and an obvious shortage of insurers from which proposals can be solicited.

Loss-control programs have done much to reduce the frequency of accidents. However, the cost per claim has risen dramatically over the last five years. In most cases, statutory benefit increases haven't driven workers compensation costs through the roof. The obvious villains are the insurance and the health-care industries. At least in this particular segment of coverage, don't fault plaintiff attorneys. Most states limit attorney's fees in workers compensation awards. These limitations are far less than the typical 30 percent to 40 percent received by attorneys for personal-injury litigation. In almost every workers compensation case review, the attorney fees are eminently fair.

What is driving me to madness is the incredible increase in the cost of health care to treat everyone, especially injured employees. I am convinced that physicians, hospitals and other providers bill aggressively when injuries are compensable. They do this, I suspect, for a good reason. They know that ultimately they will be paid. That is surely not the case with non-compensable injuries where it is not uncommon for providers to experience six- to nine-month delays before they are paid.

The use of medical managers or managed-care consultants hasn't helped much in reducing medical costs. They point to average cost savings of 15 to 20 percent annually. The test of time often confirms savings that are far less. Injured employees resent dunning notices from collection agencies for unpaid medical bills. The injured employee reprisal is swift. They seek out attorneys, sometimes through sheer frustration, to commence litigation. That type of activity continues to foster an environment that drives claim costs upward.

Did anyone ever imagine that prescription costs would often be greater than the cost of the services provided by the physician? It may be hard to believe, but it is now true. Many recent workers compensation claims that I reviewed this year actually had drug and prescription costs that were higher than the cost of professional services provided by the doctors. For years I have maintained that our current method of delivering medical services is the biggest scourge we face in this country. The medical bills I now review are products of creativity I never knew some physicians possessed. When fees are challenged, and surely they must be challenged, physicians reply that since the insurers are not paying the fees until six or seven months elapse, they must resort to their creative wiles to survive.

I foresee the day coming when medical benefit costs will routinely exceed $1,000 per month per employee.

Workers compensation premiums for warehousing and trucking, which account for nearly 85 of shippers' premiums, now approach $10 to $15 per $100 of reportable payroll. How much of an increase can a beleaguered transportation industry sustain?

An objective assessment of insurance industry proficiencies confirms they do the following things well. It's a short list:

-- They collect premiums on or before the due date of a policy or they send a cancellation notice for non-payment of premiums.

-- They deny covered claims with predictable frequency, alienating policyholders, policyholder employees, and third-party claimants.

I am weary of reading about the consequences of a litigious society. There would be significantly less litigation if insurers discharged their obligations honorably. Sadly, they don't, and they haven't for years. I don't intend this tirade to be a blanket indictment of the insurance industry. There are a few notable exceptions, i.e., AIG, Chubb, Travelers, Zurich, who have taken reasonable positions on the majority of claims I recently reviewed.

Employers must take a much more proactive position, especially with workers compensation coverage. Transportation executives must turn the heat up - focusing on claims, especially small claims, which inevitably become large claims because of poor treatment by insurers.

Thomas A. Laffey is chairman of Polaris Risk Managers Inc., a transportation insurance consulting firm. He may be reached at (973) 882-3100, or via e-mail at polarisins@aol.com. On Insurance is a monthly column.