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Workers' Comp Cost Drivers Addressed By Lawmakers

In states where there is limited friction between labor and management, participants are no longer waiting until they are in a panic because the workers' comp system is dysfunctional and needs immediate repairs.

January 6, 2012
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Expect to see state lawmakers tackle the pricing of repackaged pharmaceutical drugs this year, along with other practices that employers and insurers consider needless cost generators, several sources say.

An attempt by Oklahoma employers to gain the right to opt out of their state's workers compensation system—a popular practice in neighboring Texas—also is expected to be among major legislative efforts during 2012.

But unlike 2011, which produced comprehensive reform legislation in states such as Illinois, Michigan and Montana, 2012 is less likely to see sweeping reform efforts due to the attention on national elections, said Peter Burton, senior division executive for state relations for Boca Raton, Florida-based NCCI Holdings Inc.

"That is not to say, though, that there is not going to be a lot of state-by-state focused activity on workers' comp," Burton said. "We anticipate it's going to be a more focused approach (by interest groups) rather than a (year of) large-scale substantive reform" efforts.

In Colorado, for example, Gov. John Hickenlooper named a task force in November to review a Pinnacol Assurance proposal that could restructure the workers comp insurer into a mutual.

Such a plan also could require focused legislation on related issues, such as what would become of Colorado's residual market, Burton said.

Rita Nowak, vice president of commercial lines and workers comp for the Property Casualty Insurers Assn. of America in Des Plaines, Illinois, agrees that the 2012 elections will lessen chances of large-scale workers' comp reforms. However, she expects system tweaks in some states.

One substantial issue PCI hopes to see addressed concerns the pricing of repackaged drugs dispensed by doctors, Nowak said.

In 2010, former Florida Gov. Charlie Crist vetoed a bill that would have limited how much doctors can receive for dispensing repackaged prescription drugs to workers' comp claimants.

Last year, a similar Senate bill died in a budget committee. But H.B. 511, sponsored by Matt Hudson, R-Naples, passed through Florida's House Insurance and Banking Subcommittee in December in preparation for the 2012 legislative session.

Insurers say another attempt could succeed in 2012 because there is a new governor and the issue has gained more attention.

The repackaging issue is very "high profile" in Florida, "so we expect that issue will be addressed, hopefully successfully," said Bruce Wood, general counsel and director of workers compensation for the Washington-based American Insurance Assn.

"Other state comp commissions are also looking at this," Burton said. "I think a lot of states will be jumping on that issue."

States where insurers would like legislation capping the prices doctors charge for dispensing workers comp pharmaceuticals include Hawaii, Louisiana and South Carolina, Nowak said.

"When you look at the repackaged drugs issue, you are seeing exorbitant costs being added on," Nowak said. "It's more than opportunistic pricing."

In Oklahoma, meanwhile, Senate President Pro Tempore Brian Bingman, R-Sapulpa, has agreed to sponsor a bill that would allow employers to opt out of the state's workers' comp system, said Becky Robinson, assistant vp, risk management for Hobby Lobby Stores Inc.

Employers supporting such legislation spent 2011 laying the groundwork and expect a bill to be introduced early in 2012, said Robinson, who also is chair of the Oklahoma Injury Benefit Coalition.

Unlike Texas, which allows "nonsubscribers" to opt out of its workers' comp system, the legislation under consideration in Oklahoma would require employers opting out to provide workers with a benefit plan meeting Employee Retirement Income Security Act requirements, Robinson said. She said this may lead to fewer litigated claims.

Under ERISA, employers would have to provide workers with substantial notification of benefits they are entitled to receive upon injury and would have to meet certain deadlines to provide those benefits, Robinson added.

Other states with potential changes on tap include Tennessee, where businesses propose establishing an administrative workers' comp court system, which would eliminate hearing worker injury disputes in civil court.

But recent reports say reform proponents and the governor may want to wait until 2013 to propose broader changes to Tennessee's workers' comp system.

"From what we hear, the governor is not in a particular hurry—not because he doesn't believe there is a need for reform in the Tennessee system, but he wants to go about it deliberately ... to do it right, not just do it in haste," Wood said.

In Maine, a sweeping reform bill introduced in 2011, L.D. 1571, is expected to be taken up again in early 2012, observers said. The legislation would change the state's benefit structure, agency operations and governance.

Maine is weighing workers' comp system changes to address cost drivers even in the midst of rate reductions, said Bruce Hockman, executive vice president and workers' comp practice leader in Philadelphia for Towers Watson & Co.

Maine saw two rate reductions during 2011 for 2012 workers comp policy pricing; the first was a 3.2 percent decrease, and the second was a 3.8 percent reduction. The second reduction came after introduction of a medical fee schedule in the state, where workers' comp rates have dropped nearly 50 percent since 1993.

Hockman said he expects to see workers' comp system-improvement legislation introduced in more states, like Maine, where rates are not rising.

In states where there is limited friction between labor and management, participants are no longer waiting until they are in a panic because the workers' comp system is dysfunctional and needs immediate repairs, he said.

"It's breaking with history where workers' comp reform, like other legislation, comes out of a panic" rising, Hockman said.

Instead, "I think you are going to find a lot of people coming together to say, "If there is something broken in our system, let's get together and fix it,'" before it becomes a major cost problem, he said.

Roberto Ceniceros writes for Business Insurance, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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