2. Understanding Your Workers’ Compensation Program Jason Humphries Loss Control

3. Municipal Workers Compensation Fund, Inc. Created in 1976 Created in 1976 Second Oldest Municipal Fund in the U.S. Second Oldest Municipal Fund in the U.S. Private Carrier Abandonment Private Carrier Abandonment MWCF is Owned by the Participating Members MWCF is Owned by the Participating Members The Board is Comprised of Elected Municipal Officials The Board is Comprised of Elected Municipal Officials Non-Profit Non-Profit

4. Evolution of Workers Comp Industrial revolution migrated workers from the fields to the factories Industrial revolution migrated workers from the fields to the factories Only recourse was to sue for unsafe work conditions (Jury Trial) Only recourse was to sue for unsafe work conditions (Jury Trial) Workers were unlikely to win because: Workers were unlikely to win because: Juries were mainly made up of business owners Juries were mainly made up of business owners Any “contributory negligence” = no win Any “contributory negligence” = no win

5. Evolution of Workers Comp Employees began sitting on the jury venires Employees began sitting on the jury venires Employees started rendering verdicts against the employers Employees started rendering verdicts against the employers Employers needed to cap the escalating costs Employers needed to cap the escalating costs The employers and the unions agreed to a workers compensation act (early 1900): The employers and the unions agreed to a workers compensation act (early 1900): Worker’s would be paid for time off work Worker’s would be paid for time off work Worker’s medical bills would be paid Worker’s medical bills would be paid Contributory negligence was abolished Contributory negligence was abolished Controversies would be tried non-jury Controversies would be tried non-jury

6. Evolution of Workers Comp In return for these benefits: In return for these benefits: Workers could not sue for unsafe working conditions Workers could not sue for unsafe working conditions Employer retained the right to pick the doctor Employer retained the right to pick the doctor Income benefit based on 66 2/3 of the employee’s average weekly wage (AWW): Income benefit based on 66 2/3 of the employee’s average weekly wage (AWW): It is assumed that 1/3 of salary is paid in taxes It is assumed that 1/3 of salary is paid in taxes The income benefit is non-taxable The income benefit is non-taxable

7. Evolution of Workers Comp Death Benefits: Death Benefits: Widow receives 66 2/3 of average weekly wage (AWW) for a maximum of 500 weeks unless the widow: Widow receives 66 2/3 of average weekly wage (AWW) for a maximum of 500 weeks unless the widow: Dies Dies Remarries Remarries

8. The Workers Comp Claims Process The work related injury occurs (event date) The work related injury occurs (event date) Employee reports incident to employer Employee reports incident to employer Employee has 90 days to report incident Employee has 90 days to report incident No medical bills incurred prior to reporting are covered No medical bills incurred prior to reporting are covered Employer completes the First Report of Injury Employer completes the First Report of Injury Employer reports the incident to MWCF Employer reports the incident to MWCF Either faxes in report 205-824-0240 Either faxes in report 205-824-0240 Or calls 24 hour reporting hotline 1-866-840-0210 Recommended to report incident to Fund – 5 Days Recommended to report incident to Fund – 5 Days

9. The Workers Comp Claims Process Employer starts investigation into cause of incident to determine facts Employer starts investigation into cause of incident to determine facts MWCF receives the First Report of Injury MWCF receives the First Report of Injury Opens a claims file Opens a claims file Assigns an Adjuster Assigns an Adjuster Forwards First Report to Adjuster Forwards First Report to Adjuster

11. The Workers Comp Claims Process Three point contact by adjuster: Three point contact by adjuster: Contacts employer Contacts employer Relays the above information to employer Relays the above information to employer Contacts “Gate Keeper” Doctor Contacts “Gate Keeper” Doctor Confirms the injuries Confirms the injuries Contacts employee Contacts employee Confirms they are off work if a Lost Time claim Confirms they are off work if a Lost Time claim Adjuster starts a 2 week running diary Adjuster starts a 2 week running diary Administration of claim Administration of claim Medical payments, drug payments, rehab etc Medical payments, drug payments, rehab etc Cost Containment Phase Cost Containment Phase

12. The Workers Comp Process Definitions: Definitions: DOI = Date of Injury DOI = Date of Injury LT = Lost Time LT = Lost Time When more than 3 days off work needed to heal When more than 3 days off work needed to heal TTD = Temporary Total Disability TTD = Temporary Total Disability The temporary wages paid during time off (66 2/3) The temporary wages paid during time off (66 2/3) PLUS any medical bills (statutory coverage) PLUS any medical bills (statutory coverage) MMI = Maximum Medical Improvement MMI = Maximum Medical Improvement The doctor deems your as well as your going to get The doctor deems your as well as your going to get No further improvement is ever expected No further improvement is ever expected

13. The Workers Comp Process Definitions: Definitions: RTW = Return to work RTW = Return to work The employer can accommodate the employee’s restrictions and provide some form of job to the employee (can be temporary or permanent) The employer can accommodate the employee’s restrictions and provide some form of job to the employee (can be temporary or permanent) AWW = 52 Week Average Weekly Wage AWW = 52 Week Average Weekly Wage The employee’s gross salary for 52 weeks prior to the injury is added and then divided by 52 to derive the average weekly wage. The employee’s gross salary for 52 weeks prior to the injury is added and then divided by 52 to derive the average weekly wage.

14. The Workers Comp Process Doctor’s Physical Impairment Rating (RTW) Doctor’s Physical Impairment Rating (RTW) The doctor’s impairment rating is a percentage of impairment to the body as a whole. This percentage indicates the amount of the body that is not functional after the injury. The doctor’s impairment rating is a percentage of impairment to the body as a whole. This percentage indicates the amount of the body that is not functional after the injury.Example: The employee has a back injury that requires surgery. He reaches maximum medical improvement (MMI) and the doctor gives him an impairment rating of 5% to the body as a whole which means that the employee has lost 5% functional movement.

15. The Workers Comp Process A Vocational Rating – This is a percentage of all jobs available in America that the employee can no longer perform after his injury. It is based on: A Vocational Rating – This is a percentage of all jobs available in America that the employee can no longer perform after his injury. It is based on: Loss of access to jobs Loss of access to jobs Loss of earnings potential Loss of earnings potential It also takes into account such factors as age and education It also takes into account such factors as age and education THIS IS A VERY SUBJECTIVE PROCESS THIS IS A VERY SUBJECTIVE PROCESS Lump sum payment is calculated using: Lump sum payment is calculated using: Value = AWW x 662/3 x Voc Rating x 300 AWW – average weekly wage prior to injury 300 – statutory coverage in number of weeks

16. The Workers Comp Process (Timeline of Events) DOI – Employee is injured DOI – Employee is injured L.T. – Employee is injured badly enough to remain out of work for more than three days. Now considered a lost time claim. L.T. – Employee is injured badly enough to remain out of work for more than three days. Now considered a lost time claim. Dr. determines employee to be T.T.D., P.P.D., or allows the employee to return to work with modified work restrictions. Dr. determines employee to be T.T.D., P.P.D., or allows the employee to return to work with modified work restrictions.

17. The Workers Comp. Process Employee reaches M.M.I. Employee reaches M.M.I. If employee can R.T.W. Dr. gives employee an impairment rating. If employee cannot return to work (due to employer’s inability to accommodate or Dr.’s determination) Dr. gives employee a vocational disability rating. If employee can R.T.W. Dr. gives employee an impairment rating. If employee cannot return to work (due to employer’s inability to accommodate or Dr.’s determination) Dr. gives employee a vocational disability rating.

18. The Workers Comp Process Claim Settlement Value Claim Settlement Value Return to Work (RTW) – The employer can provide the employee with a job. The Claim Settlement Value is based upon a formula that includes the doctor’s physical impairment rating only – Low Settlement Value Return to Work (RTW) – The employer can provide the employee with a job. The Claim Settlement Value is based upon a formula that includes the doctor’s physical impairment rating only – Low Settlement Value No Return to Work – The employer cannot provide the employee with a job. The claim settlement value is based upon a formula that utilizes a vocational disability rating i.e. not the doctor’s impairment rating – High Settlement Value No Return to Work – The employer cannot provide the employee with a job. The claim settlement value is based upon a formula that utilizes a vocational disability rating i.e. not the doctor’s impairment rating – High Settlement Value

19. The Workers Comp Cost Containment Create the “Cost Containment Box” Create the “Cost Containment Box” Cornerstone is the Medical Protocol Cornerstone is the Medical Protocol Gatekeeper Doctor is assigned by employer Gatekeeper Doctor is assigned by employer Any Doctor the Gatekeeper refers to is automatically approved Any Doctor the Gatekeeper refers to is automatically approved Creates the need to have referral list already completed: Creates the need to have referral list already completed: Orthopedic Specialist Orthopedic Specialist Neurologist Neurologist ER must only refer back to the Gatekeeper ER must only refer back to the Gatekeeper All Doctors used are predetermined and we stay within the “box” – known results All Doctors used are predetermined and we stay within the “box” – known results

20. MANAGEMENT MEDICAL PROTOCOL Management Medical Protocol – Refer to Handout Management Medical Protocol – Refer to Handout This document is for management only This document is for management only Employer/Doctor designation is a key right under the Statute (¶ II) Employer/Doctor designation is a key right under the Statute (¶ II) Eliminates multiple drug prescriptions – Drug Addiction i.e. one doctor in charge of drugs (¶ IV, E) Eliminates multiple drug prescriptions – Drug Addiction i.e. one doctor in charge of drugs (¶ IV, E) Eliminates plaintiff attorney’s trick of utilizing ER doctor to refer to attorney-friendly doctor (¶ IV, C&D) Eliminates plaintiff attorney’s trick of utilizing ER doctor to refer to attorney-friendly doctor (¶ IV, C&D)

21. EMERGENCY ROOM PROTOCOL Emergency Room Protocol – Refer to Handout Emergency Room Protocol – Refer to Handout This document on file with the emergency room This document on file with the emergency room The ER knows to refer only to the “Gate Keeper” doctor The ER knows to refer only to the “Gate Keeper” doctor Eliminates employee’s ability to manipulate ER doctor referral to personal physician Eliminates employee’s ability to manipulate ER doctor referral to personal physician

22. EMPLOYEE DOWNLINE SHEET Employee Downline Sheet – Refer to Handout Employee Downline Sheet – Refer to Handout Communicates the process to the employee Communicates the process to the employee Instructs employee to report injury Instructs employee to report injury Designates primary physician (Gatekeeper) Designates primary physician (Gatekeeper) Designates emergency room Designates emergency room Recommended to be put in all pre- employment applications/Personnel files Recommended to be put in all pre- employment applications/Personnel files

23. Workers Comp Premiums Classifying employees: Classifying employees: NCCI produces a nationally standard Scopes Manual NCCI produces a nationally standard Scopes Manual Contains all job classifications Contains all job classifications Contains rates for each classification Contains rates for each classification Actuaries then calculate a Loss Cost Multiplier: Actuaries then calculate a Loss Cost Multiplier: The Loss Cost Multiplier changes the rate based on nationwide industry losses for each class The Loss Cost Multiplier changes the rate based on nationwide industry losses for each class MWCF Board approves these rates MWCF Board approves these rates These rates are submitted to DIR for final approval These rates are submitted to DIR for final approval

24. The Workers Comp Billing Process DIR approved rates then multiplied by Estimated Payroll for each class DIR approved rates then multiplied by Estimated Payroll for each class Produces the Manual Premium for each class Produces the Manual Premium for each class Total Manual Premium adjusted by: Total Manual Premium adjusted by: Experience Modification Factor Experience Modification Factor Takes entities own losses into account Takes entities own losses into account Exp Mod above 1.0 = increases the premium Exp Mod above 1.0 = increases the premium Exp Mod below 1.0 = decreases the premium Exp Mod below 1.0 = decreases the premium Special MWCF discount programs Special MWCF discount programs

25. The Workers Comp Costs What is driving national industry costs: What is driving national industry costs: Litigation and disputed cases Litigation and disputed cases 25% or less of claims involve severe disability 25% or less of claims involve severe disability These claims account for the vast majority of costs and litigation These claims account for the vast majority of costs and litigation Medical Costs Medical Costs Federal Statutes and Acts Federal Statutes and Acts The Reinsurance Cost After 9/11 The Reinsurance Cost After 9/11

26. The Workers Comp Costs (Severe Disabilities) Permanent Partial Disability (PPD) is a major cost driver and litigated condition: Permanent Partial Disability (PPD) is a major cost driver and litigated condition: PPD is the doctor’s rating given to an employee that is utilized to determine a settlement value PPD is the doctor’s rating given to an employee that is utilized to determine a settlement value In most states PPDs represent the largest share of losses In most states PPDs represent the largest share of losses

27. Severe Disabilities Cont. PPD costs account for 60% of all benefit costs according to national industry standards PPD costs account for 60% of all benefit costs according to national industry standards On average each case costs approx $49,000 according to national industry standards On average each case costs approx $49,000 according to national industry standards P.P.D. settlement values based on Dr. impairment ratings P.P.D. settlement values based on Dr. impairment ratings

28. The Workers Comp Costs Ten Reasons Why Attorneys are retained: Ten Reasons Why Attorneys are retained: 1. Claim denial Claimant profiling Claimant profiling 2. Little or no contact by employer or insurance company 3. Overbearing or intrusive contact by employer Positive contact is important Positive contact is important 4. Unpaid bills and unreimbursed prescription fees 5. Attorney advertising and solicitation 6. Outside influences or third party advice Friends, family, med providers and attorneys Friends, family, med providers and attorneys

29. The Workers Comp Costs 7. Lack of modified duty Employee feels harassed upon RTW Employee feels harassed upon RTW 8. Employee / Employer dissatisfaction Low morale / low morals Low morale / low morals 9. Loss of health insurance or other benefits 10. Accidents that should have not occurred in the first place Employers must take an active role in preventing accidents Employers must take an active role in preventing accidents

30. The Workers Comp Costs Medical care: Medical care: WC is a medically driven system WC is a medically driven system “Medically driven” means med info guides all the key decisions “Medically driven” means med info guides all the key decisions All reasonable and necessary med care is covered All reasonable and necessary med care is covered Four elements of med cost inflation: Four elements of med cost inflation: 1. Doctors delivering more units of treatment or more expensive treatment 2. Injured workers more resistant to RTW 3. Employers maybe procrastinating at RTW 4. Plaintiff attorneys attempting to obtain more favorable impairment ratings through more Doctors visits

31. The Workers Comp Costs Prescription drug cost increases: Prescription drug cost increases: Costs of drugs are rising nationally Costs of drugs are rising nationally 1997 – 6.5% of total WC costs nationally 1997 – 6.5% of total WC costs nationally 2001 – 9.6% of total WC costs nationally 2001 – 9.6% of total WC costs nationally 2006 expected to be almost 13% nationally 2006 expected to be almost 13% nationally Utilization rising Utilization rising 1. Greater availability 2. Aggressive marketing 3. Aging workforce 4. Increased access through insurance

32. The Workers Comp Costs Prescription drug cost increases: Prescription drug cost increases: Availability of newer high priced drugs Availability of newer high priced drugs Vioxx and Celebrex Vioxx and Celebrex Drugs without generic equivalent account for 56% of WC pharmaceutical costs Drugs without generic equivalent account for 56% of WC pharmaceutical costs In 2001 brand name drugs cost 107% more than generics In 2001 brand name drugs cost 107% more than generics MWCF Solution – Prescription card program that automatically reduces costs below the national level and the state fee schedule MWCF Solution – Prescription card program that automatically reduces costs below the national level and the state fee schedule

33. The Workers Comp Containing Costs How do we contain these costs? How do we contain these costs? Using negotiation to control costs (AlaMed) Using negotiation to control costs (AlaMed) Purchasing power (AlaMed) Purchasing power (AlaMed) Fee schedules (AlaMed) Fee schedules (AlaMed) Implementing safety controls Implementing safety controls

34. The Workers Comp Containing Costs Nationally direct costs Nationally direct costs Annual WC losses reach $50 billion Annual WC losses reach $50 billion L.T., medicals, legal, and benefits comprise only 28% of total costs of a disability L.T., medicals, legal, and benefits comprise only 28% of total costs of a disability Remaining 72% represent indirect costs Remaining 72% represent indirect costs

35. The Workers Comp Containing Costs Indirect costs Indirect costs Loss in work productivity Loss in work productivity Work replacement Work replacement Cross training of employees Cross training of employees Administration’s time spent due to absence Administration’s time spent due to absence

36. The Workers Comp Containing Costs Early 80s view of RTW Early 80s view of RTW “whole man, no man” “whole man, no man” WC meltdown of 80s changed this view WC meltdown of 80s changed this view 1980’s – 60% of benefit dollars were for medical treatment 1980’s – 60% of benefit dollars were for medical treatment 1990’s – 60% of benefit dollars are for indemnity and only 40% is for medical treatment due to AlaMed and State Fee Schedule 1990’s – 60% of benefit dollars are for indemnity and only 40% is for medical treatment due to AlaMed and State Fee Schedule 2000’s – 70% Medical and only 30% indemnity 2000’s – 70% Medical and only 30% indemnity

37. The Workers Comp Containing Costs Developing RTW programs Developing RTW programs Primary function - to provide “temporary” accommodation Primary function - to provide “temporary” accommodation Must adhere to doctor’s restrictions Must adhere to doctor’s restrictions Transitional Light Duty program (See Handout) Transitional Light Duty program (See Handout) Time limited to a set time period or reaching maximum medical improvement Time limited to a set time period or reaching maximum medical improvement Avoids ADA and wrongful termination issues Avoids ADA and wrongful termination issues MWCF pays differential MWCF pays differential

38. The Workers Comp Containing Costs RTW or not? RTW or not? Whole man no man no longer seen as good business strategy Whole man no man no longer seen as good business strategy Deters “system abusers” Deters “system abusers” Gain work productivity during recovery period Gain work productivity during recovery period Settlement value based on doctor’s medical rating (low) versus vocational rating (high) Settlement value based on doctor’s medical rating (low) versus vocational rating (high)

39. The Workers Comp Containing Costs Based on recent national studies: Based on recent national studies: Employees that are satisfied with their employers response to injury returned to work 50% faster Employees that are satisfied with their employers response to injury returned to work 50% faster Many organizations that have RTW programs have experienced 25-50% cost reductions Many organizations that have RTW programs have experienced 25-50% cost reductions

40. The Workers Comp Containing Costs Safety Controls Safety Controls Engineering controls Engineering controls Work practice controls Work practice controls Administrative controls Administrative controls Personal protective equipment Personal protective equipment

41. The Workers Comp Containing Costs Steps of action Steps of action Start NOW Start NOW Assign a safety coordinator Assign a safety coordinator Learn current safety program Learn current safety program Make safety a top priority Make safety a top priority Identify hazards Identify hazards Choose and implement strategies Choose and implement strategies Establish training programs for each department Establish training programs for each department Record implementation and effectiveness of strategies Record implementation and effectiveness of strategies Establish continual hazard controls Establish continual hazard controls Accident Investigation Accident Investigation

42. Questions? Thank You.