LRA's Guide to Workers' Compensation on the Web:

November 1998

By Greg

 The Next Assault
on Workers' Comp

Executive Director

Labor Research

New York, NY


Presented to

ATLA Convention

November 7, 1998

Hilton Head,

South Carolina



The National Federation of Independent Business

The Attack On Attorney Involvement

The Second Round of "Reforms"

Getting Attorneys Out of the System

The Role of Fraud Accusations

What Is to Be Done on Fraud

Launching An Offensive


The goal of the business community, represented in its most radical form by the National Federation of Independent Businesses, is to drastically reduce workers' compensation costs to the barest possible level while maintaining the legal protection that comes with exclusive remedy. The strategy combines a number of related elements: cutting benefits to a negligible level, tightening eligibility to exclude all but the most obviously injured workers, discouraging all workers from filing claims, and eliminating claimant attorney involvement.

All of this requires legislative change at the state level.


The National Federation of Independent Business

Regardless of the actual outcome of any one particular race in Tuesday's elections, the National Federation of Independent Business used the 1998 campaign to make a larger and in many, ways, more important point: It is the new powerhouse in the electoral arena, particularly at the state level, and it is prepared to reward and punish candidates in ways that no one can afford to ignore.

With 600,000 members and offices in all fifty state capitals, the NFIB endorsed a record number of congressional candidates ­ 300 ­ almost all Republicans, and held an unprecedented 1,200 campaign-related meetings at the state level. For the first time ever, the NFIB staged fundraising events in the local offices of 125 congressional candidates. About 12,000 NFIB members took an active role as volunteers in this year's campaigns, four times as many as two years ago. Its PAC handed out $1.4 million in political contributions, double what it spent in 1996.

The NFIB can now press its agenda for workers' compensation in the 1998-1999 legislative sessions without any doubt that politicians across the country will listen.

The NFIB has been instrumental in pressing for workers comp "reforms" in virtually every state.

With the support of the Chamber of Commerce and other employer groups, the NFIB is spearheading the campaign to end workers' compensation as we know it.

They are about half way through the process. The massive task of pushing through new legislation state by state began in the late 1980s. The first round of change­ partial reforms in forty of the fifty states ­ is complete. The next task is to go back for a second round of deeper cuts and permanent reductions in the number of claims.

The Attack on Attorney Involvement

Employer groups and their allies in the state legislatures know that before they can stage their final assault on the workers' compensation system and complete the second round of cuts, they have to get the lawyers out of the way.

Most states have already achieved dramatic reductions in claims and costs, resulting in huge rate reductions. Rhode Island, for example, just announced a 10% cut in workers compensation insurance rates for 1999, the third consecutive year of cuts that have reduced rates by a total of more than 60%. Legislation passed in 1992 tightened eligibility and capped benefits after six years. The total number of cases filed at the Rhode Island workers' compensation court has fallen by half, from 15,700 in the 1991, the last year before the "reforms," to 7,900 in 1997.

These same results have occurred all over the country in state after state, where new workers' compensation laws have slashed benefits and pushed injured workers out of the system entirely.

Every attempt to reduce workers' compensation benefits, to tighten eligibility, to standardize claims, or to promote the AMA Guides and increase the number of schedule injuries, is simultaneously an attempt to reduce attorney involvement in the system.

The attempt to push attorneys out has become particularly acute in states where the first attempts at "reform" have not produced sufficiently dramatic reductions in costs.

In Florida, for example, the vast reforms initiated in 1993 have not produced the results that employers were looking for. In fact, despite the introduction of mandatory managed care in workers' compensation and decreasing claim frequency, in October the National Council on Compensation Insurance called for a workers' compensation rate hike of 15%. Employers and insurers are now targeting litigation costs as the cause of higher rates and gunning for new legislative controls in 1999.

Workers' compensation is particularly vulnerable in the broader drive for lower labor costs because the only people who really "own" the system are injured workers, who are relatively powerless. If you can push their lawyers out of the way, the path is clear for even more drastic changes in the system.

The Second Round of "Reforms"

The second round of "reforms" is already underway in some states and just beginning in others. The main players remain the same: the Chamber, the National Association of Manufacturers, the NFIB, the American Insurance Association, and other employer and insurance carrier associations, plus the major corporations and carriers, and the usual train of consulting firms specializing in claims management, integrated benefits, alternative dispute resolution and return-to-work programs.

Radical elements in the NFIB argue that medical care for injured workers can be covered through regular insurance programs, and that workers' compensation indemnity benefits should be replaced by the welfare and social security payments.

More moderate pro-employer forces fear an outright end to workers' compensation and prefer to fight for dramatically lower benefits and costs and for an iron-clad interpretation of exclusive remedy to block tort suits and issues of employer liability.

For both the extreme and the more moderate elements, the plan is to reduce and standardize the benefits of the system to the point where any potential advocates, including claimants' attorneys, no longer have a substantial stake in outcomes.

If there's any doubt about what's on the horizon, just take a look at what employers are saying. The National Institute of Business Management, in its April 7th Business Briefing & Tax Reduction Report, advised its readers:

"Prepare now for an overhaul of workers' compensation programs. Experts predict a shake-up that will lead to a more proactive and cooperative relationship between employer, employees, and insurers. . . . Fighting claims is seen as a waste of money. Why? Because it eats up about 25% of a payer's total claim costs. . . . Expect changes in the protocol for treatment of workers' comp injuries down the road. Examples: Primary care physicians taking over case management, more treatment of injured employees at the work site and widespread and easy access to a sports-medicine approach to treating injuries."

The American Insurance Association (AIA) released its agenda for ongoing reforms in its new annual report:

"Enact additional cost containment reforms where still needed."

"Block attempts to reverse reforms already adopted."

"Fix flaws in partial reform laws, especially those that impose wasteful burdens on loss control or create impediments to effective managed care."

The states targeted by the AIA for reforms include Tennessee, Hawaii, Georgia, New York, Alabama, Illinois, Missouri, and Michigan. States where AIA notes the potential for litigation and constitutional challenges to new legislation include California, Colorado, New Mexico, Florida, Oregon, and Texas.

The American Legislative Exchange Council (ALEC), a 2,900-member organization of "pro-free enterprise" state legislators, meets regularly with corporate executives to develop model state legislation for workers' compensation. One of their priorities is to make exclusive remedy a no-exceptions protection for employers against tort lawsuits brought by injured workers.

The next round of "reforms" in workers' compensation will include these elements:

1. Claims for a number of injuries, particularly nonscheduled soft-tissue injuries, will be limited or abolished. This includes:

2. A drive to install the mandatory exclusive use of the AMA Guides will build.

3. A push for an end to tort suits and a push for ironclad exclusive remedy provisions.

4. Laws mandating that defendants be represented by counsel at adversary proceedings and acceleration of alternative dispute resolution programs. There will be a move to end reliance on formal hearings to settle disputes. Medical reports will replace depositions.

5. Sharp restrictions on all indemnity benefits, particularly permanent partial disability benefits. Permanent partial disability claims are expensive and usually entail attorney involvement.

Getting Attorneys Out of The System

Claimants' attorneys are being hit from all sides; the end goal for employers and insurers is zero attorney involvement in workers' compensation claims. This will make it easier for employers and insurers to provide only the lowest possible benefits and cut legal fees. Employers and insurers will focus more and more on ways to reduce litigation and the associated expenses of litigation in workers' compensation cases.

Despite the decline in workers' compensation indemnity and medical costs and in the frequency of claims, one group of costs that have not declined is loss adjustment expenses ­ the costs of settling a claim, including attorneys' fees, claim adjusters' salaries, medical bill auditing expenses, and utilization review expenses. These expenses total about 13% of premium, up from 10.7% in 1990, 9.5% in 1985, and 8.4% in 1980. These costs are coming under greater scrutiny.

The NCCI estimates that there is attorney involvement in 5-10% of all medical claims and about one-third of all indemnity claims. The highest rate of attorney involvement is in high-cost permanent partial disability claims. NCCI estimates that 80-90% of these cases involve an attorney.

NCCI conducted a study of more than 8,000 high-cost permanent partial claims from 13 states to determine the effects of attorney involvement. The study concluded:

The high-attorney involvement claims ­ soft-tissue injuries, permanent partial disability cases, nonscheduled claims ­ are precisely the claims that are under the most concerted attack.

To stem the high costs of claims and attorney involvement, the NCCI suggests that, "system reforms, including improved definitions of 'compensability' and streamlined statutes for permanent partial disability benefits, would help reduce attorney involvement and costs . . . "

Soft tissue claims now represent 52% of all claims, up from 47% a decade ago. The "easier-to-diagnose" injuries ­ amputations, burns, concussions, fractures, infections, and lacerations ­ have all declined as a percentage of total claims over the past decade, while strains, sprains, carpal tunnel syndrome, and occupational disease claims have all increased.

A significant part of the push to install mandatory exclusive use of the AMA Guides comes from the desire to cut permanent partial claims and decrease attorney involvement in nonscheduled injury claims.

The continued push for mandatory, exclusive use of the AMA Guides will be a key part of the next round of reforms. Although many states recommend or require some consideration of the Guides, most allow for other factors in determining benefits and do not make a straight translation from impairment ratings under the Guides to actual disability benefit payments. Moving to mandatory exclusive use of the Guides will eliminate any chance for disputing awards for thousands of injured workers.

Beyond installation of the AMA Guides, many employers are exploring 24-hour coverage and fully integrated benefits. One of the largest savings involved is administrative savings, including a virtual halt to workers' compensation litigation and easy enforcement of exclusive remedy provisions.

The Role of Fraud Accusations

The presumption of widespread claimant fraud is a tool used by employers to undermine the validity of the workers' compensation system and pave the way for draconian restrictions in eligibility and massive cuts in benefits. Accusations of widespread claimant fraud were widely used to push through the first round of "reforms," and will be used again in the second round.

The NFIB, employer groups, and employers are all well aware that cases of claimant fraud are relatively rare. But they also know that these isolated cases can be used to cast doubt on the validity of all claimants' injuries and to undermine the workers' compensation system as a whole.

Assertions about widespread fraud and malingering are particularly useful in the business community's attack on permanent partial disability benefits. And accusations of fraud are conveniently used to undermine the cases where the overt physical symptoms are not highly visible and where the medical means for measuring the degree of disability may not be exact. These cases include some of the most difficult to treat and some of the most expensive cases, and those which are occurring with greater frequency in the modern work place ­ soft tissue injuries and cumulative trauma injuries and occupational diseases.

The misplaced focus on claimant fraud has not only helped clear the way for legislative attacks on the system, but has also created an atmosphere of fear and intimidation for injured workers with legitimate claims and discourages these workers from filing claims and collecting the benefits that are rightfully theirs. It has also distracted policymakers, law enforcement officials and the public from the real fraud problem in workers' compensation: employer fraud.

The charges of widespread claimant fraud began when dramatic increases in workers' compensation premiums throughout the late 1980s and early 1990s fueled unsubstantiated charges that costs were high in part because workers abused the system, fraudulently collecting benefits for faked injuries or remaining on benefits far longer than their recovery required. Some insurance companies saw fraud as a way to explain why premiums were soaring, and politicians and the media jumped on the bandwagon.

The American Insurance Association estimated fraud losses at 10% of the cost of claims paid, or about $3 billion. The National Insurance Crime Bureau doubled the AIA's estimate to $6 billion, even though it was involved in only 99 fraud prosecutions in 1994 and 134 in 1995 nationwide. The Coalition Against Insurance Fraud adopted the AIA's estimate. One insurance company president put the cost of workers' compensation fraud at $30 billion a year ­ more than half of total workers' compensation costs nationwide.

These huge numbers grabbed the attention of the public and policyholders. The presumption in the press and in the state houses was that fraud was rampant and that most workers' compensation fraud was claimant fraud.

California's Governor Pete Wilson asserted that fraud in California involved 25% of all claims and 10% of all costs. In its estimates of fraud within its own state, Kentucky reversed California's estimates, claiming that fraud accounted for 10% of claims and 25% of costs. New York's massive 1996 workers' compensation legislation, including its fraud provisions, were a direct result of employer claims that workers' compensation costs were out of control and fraud was a large part of the problem. No one mentioned that fact that in New York Sate Insurance Department's annual report on insurance fraud, workers' compensation fraud represented only 3% of all the fraud reports in the state in 1996, the year that the legislation was passed.

Since that time, more than half of the states have passed legislation on workers' compensation fraud, with most of the laws directly primarily at claimants. Thirty-three states currently have active workers' compensation insurance fraud units, many of them geared to fighting claimant fraud. In every state, some claimant fraud has been discovered, and publicity about the cases has clearly created a deterrent for workers who might have contemplated fraudulent claims. Perhaps most importantly, the fixation on claimant fraud has distracted policymakers, enforcement agencies, and the public from growing evidence of the real problem: million and millions of dollars in employer and provider fraud.

What Is To Be Done On Fraud?

Experts know that claimant fraud is not a major cost driver in workers' compensation, but employers have learned that the myth of rampant fraud is a valuable tool in achieving their legislative goals. Here's what must be done to end this opportunistic emphasis on claimant fraud:

1. We need to investigate every assertion of rampant claimant fraud, and publicize the results. Any assertion concerning rampant claimant fraud should be subjected to the closest scrutiny. Those who make false or unsubstantiated assertions about claimant fraud are slandering honest working people and misleading the public and should be exposed.

Like other states that are pursuing workers' compensation fraud, New York is quickly discovering that the real drain on the system stems from employer and provider fraud. Insurance officials in Florida, which has pursued fraud on all levels more aggressively than most states, have flatly stated that employer fraud is by far the largest problem in that state. In California, Texas, and Wisconsin, detailed studies all indicate that changes of rampant claimant fraud are false, and that employer fraud is a significant problem.

2. We have to turn the tables and force state legislatures and insurance companies to investigate the real fraud problem in workers' compensation: employer fraud. The best evidence from the states that have pursued fraud and generated detailed records indicates that for every $1 dollar lost in claimant fraud, at least $4 to $5, and in some states as much as $10, are lost through premium fraud. In addition to premium fraud, employers often fail to purchase workers' compensation insurance despite state laws mandating that they do so. Colorado, Wisconsin, and California are beginning to use computerized cross-checking systems to catch employers who illegally fail to insure.

Cases of employer fraud must be uncovered and publicized.

3. The legal community must protect workers who are harassed or threatened when they file claims. There are reports of employers instructing injured workers to seek treatment under group health insurance rather than workers' compensation, employers discouraging workers from filing workers' compensation claims and firing workers who file claims. There are also cases of workers who are not allowed to return to work or who are forced to return to jobs that pay far less. There are workers who are refused jobs because they filed a claim in a previous job. These workers must be protected and the public must be made aware of their plight.

Unsubstantiated charges of rampant claimant fraud undermine public confidence in the system and discourage legitimately injured workers from seeking the benefits they need and deserve. Insurers must be investigated as well as employers who deny workers' their rights. In California, a detailed investigation by state auditors found that workers' compensation insurers violated workers' rights in about half the claims it audited. The violations included "unacceptably high amounts" of unpaid benefits, late payments, inaccurate benefit notices and failure to notify injured workers of their rights.

4. We must insist that insurers and lawmakers go after medical providers. Outright fraud occurs when providers bill for treatments that never occurred or were blatantly unnecessary. Some of the newer forms of medical provider fraud include kickbacks from specialists and other treatment providers to referring physicians, and provider upcoding, where provider charges exceed the scheduled amount. Managed care creates more opportunities for fraud because the of financial relationships and incentives between players. Before employers push for more a more extended use of managed care in workers' compensation cases, we must educate the public and the legislatures about the potential for abuse.

5. We have to bring into focus a more accurate picture of who claimants are and why they need benefits. The grossly overstated estimates of claimant fraud have not only subjected injured workers with legitimate claims to fear and intimidation, but have also obscured a more serious look at the workers' compensation system and the benefits its provides. In most states, workers' compensation benefits provide little more than poverty-level existence. Workers often wait weeks and months for payments.

The presumption of widespread malingering and dishonesty undercuts any meaningful discussion of the adequacy of benefits and provides a convenient response for those opposed to the benefit increases that are so critically needed in many states. Until the misplaced focus on claimant fraud is overcome, district attorneys will continue to fry the small fish while the big fish go free, and the voting public will remain distracted by anecdotes.

The emphasis on fraud and costs also distracts the public and lawmakers from the workplace hazards flagrant safety violations that are the real cause of the problem of worker injuries and workers' compensation costs.

Launching an Offensive

In addition to ending the attack on claimants and the charges of rampant claimant fraud, the best way for claimants and their representatives to prepare for the next round of attacks on workers' compensation is to launch a preemptive offensive demanding real reforms. These reforms should be anchored in the idea that the best approach to cost control from every vantage point is to reduce the frequency and severity of claims through workplace safety programs. This is the common ground on which all parties ­ employers, workers, legislators, taxpayers ­ can agree and benefit.

The offensive should encompass these related elements:

The state legislatures and the press have been captives of the business lobby on workers' compensation issues. A claimants-based offensive must end this. The most important first step in any state campaign is a detailed analysis of workers' compensation claims and costs. Few states have compiled the information needed to provide any real solutions to the problems that plague the system. Without these analysis, there is nothing to refute the claims made by employer groups in their drive for benefit reductions.

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