Good news, no news on worker’s compensation

Gov. Walker’s team happily announced a 3.2% decrease in worker’s compensation rates for Wisconsin employers last week. That’s good for the economy; down is better than up. But they all know it could be a lot better.

The small decrease was made possible by an improved safety record on the part of employers and employees.

Lean disciplines are at the heart of the advances. Many manufacturers, some service companies, constructions companies like Boldt, a few governments, school districts like West Bend’s, a few hospitals like Theda Care, Bellin and Gunderson have adopted lean disciplines. Why is that important? Because lean companies thrive on metrics, and their number one concern and metric is always employee safety. It’s foundational in the lean philosophy. If an employer can’t get employee safety right, how can it get anything else right?

Fewer accidents result in a lower classification by the Department of Workforce Development and therefore better rates.

A good track record can also earn a company a dividend or rebate at the end of the year. Regulated rates aside, the level of the dividend are how the insurers compete for business.

So far, so good.

But the elephant in the room is the plain, hard fact that hospitals, clinics and doctors charge two to three times as much for worker’s comp cases that they do for the same cases that are not work related.

Then elephant is an intended pun, because Republican leaders know of this gouging, and they have not stepped up to change it. Management and labor support a fee schedule that approximates the market-based prices employer and employees pay for injuries through their health plans. But they can’t get their bills through the legislature to the governor’s desk for signature.

The lobbies for hospitals, docs, chiropractors and physical therapists write big checks for politicians on both sides of the aisle and they have members in every legislative district access the state. They are a force. They are stronger than the business lobbies.

This is not a minor issue. We are talking big money.

The bill for worker’s compensation is $1 billion across all employers. Of that, in round numbers, about $300 million is for indemnity, the damages paid to a worker for a permanent injury. The improved safety statewide has held that number under control over the two decades.

The other $700 million, the cost of medical treatments, is another story. Like most health costs, they have been rising fast in recent years. The cost escalation is compounded by the pricing that is several multiples of normal market pricing.

A carpal tunnel surgery ought to cost about $1500; under WC rates, it costs almost double that. Note: that’s for or the same surgery at the same clinic by the same doctors.

How do medical providers justify the difference? They don’t really. They just know they have a sweet niche (about 2% of their revenues) and they don’t want to give it up if not forced to do so.

Their lobbyists make the case that their clients get abused by the federal government’s low Medicare and Medicaid prices (true enough), and they have to make it up somewhere. Because they have the power in Madison, employers are elected to pay for the make-up.

Half the $700 million, or more, could be saved if Gov. Walker and Republican legislative leaders would chin up to the challenge of fixing this screwed-up pricing arrangement. That would be the equivalent of a $350 million tax cut for businesses in the state.

You want the state to be more competitive? Well, there’s a bold move toward that end.

In absence of political leadership, private employers are just going to have to figure it out on their own. One solution could be self-insurance for worker’s compensation.

That’s the path taken most private payers for their main health plans. Some large employers already self-insure for worker’s comp. Expect more to follow suit.

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  • Connie Kinsella

    John, I couldn’t agree more with your appreciation for lean business practices. In fact, that is a large (though not sole) part of the reason the health insurers enjoy more favorable rates than Work Comp Carriers. They, like providers, have committed to efficient business practices, in the form of electronic claims, remittances, records requests and timely payment. WC carriers do none of that. They require paper claims that must be printed and mailed. They print and mail requests for records, which are also printed and mailed back to them. Finally, they print a remittance and mail a check. It commonly take 90 or more days to receive payment on a claim that Medicare pays in 15 days and commercial health insurers pay in 30 or less. The only payer that takes longer is the State of Illinois, and they’re nearly bankrupt. The archaic, manual, cumbersome business practices followed by WC carriers along with the delay in payment is what is at the root of the rates paid by WC, just as the more favorable rates that health insurers pay reflects the lower cost of doing business with them. Perhaps if WC carriers could move into the 21st century and adopt some of these administrative efficiencies, i.e. lean practices, they could achieve better rates.
    Connie Kinsella

    • Mark Reddington

      Hi Connie, I’d like to point out that administrative efficiences gained through an emphasis on lean are the thip of the iceberg! Lean in healthcare has resulted in great quality and efficiency gains for many healthcare organizations. The question is….what happens with the margin? We know charges continue to increase. One can assume that the HC orgs who see the gain are banking it….especially when it comes to WC.

  • Andy Serio

    Great observations, as usual, John. But a couple of barriers. Health insurance is a Benefit. WC is an aan Entitlement. SEE S.S. 102. Wisconsin Statutes have historically been amended via an Agreed on Bill formed thru an Advisory Council of Labor and Management. There is no chance, based on the latest reduction in Rates, that the Statute will be amended to equalize occupational and non-occupational care costs. Also, self-insurance must be approved by the WC Administration, and it is a difficult orocess, resulting in only about 150 self-insured corporations in WC in Wisconsin. Public Sector is an easier process, but still entails State aporoval. Thanks, John

    • JohnTorinus

      Good insights about what is. Still, reform has to be accomplished, one way or another.