A Letter to the Editor About Workers Compensation

Editor's Note: Bob Hartwig is president of the Insurance Information Institute. He recently wrote a rejoinder, below, to the recent articles by ProPublica and NPR on the workers' compensation industry.

As president of the Insurance Information Institute (I.I.I.) and as someone who has worked in the workers compensation business (at the National Council on Compensation Insurance), I have followed with great interest the ProPublica/NPR series about workers compensation insurance. The I.I.I. has as its primary mission to improve public understanding of insurance—what it does and how it works. And with that mission in mind, it’s necessary that the record be set straight using facts—verifiable, incontrovertible facts—rather than the unsubstantiated assertions, incorrect interpretations and subsequent erroneous conclusions upon which the basic premise of this series is built.

The very title of the ProPublica/NPR is at best misleading and at worst erroneous. “The Demolition of Workers Comp” is hyperbole of the highest order. The fact of the matter is that workers compensation insurers today provide some $40 billion in benefits annually to hundreds of thousands of injured workers and to the families of those killed on the job—a basic and important fact that is somehow omitted by the authors. Also omitted from the piece is the indisputable fact that the workplace has become safer—much safer—in no small part due to the relentless loss control efforts of insurers and employers in partnership with state and federal government. The incidence rate of fatal occupational injuries plunged by 36 percent over the past two decades and by 90 percent over the past century—precisely coincident with the dawn of modern workers compensation systems. Yes, part of the decline is due to fewer hazardous occupations, but a larger part is due to the incentives that insurers and workers comp systems have in place, such as charging employers with higher injury rates more (and those with lower injury rates less) and offering discounts to employers that implement accident-reducing technologies and training.

The improvements in workplace safety are not confined to deaths. For 21 of the past 24 years, according to the National Council on Compensation Insurance (NCCI), the frequency rate of injuries severe enough to cause workers to lose time away from the job has declined--across virtually every industry and occupation. The ProPublica/NPR characterization of workers compensation as a system that is failing workers when that very same system has saved thousands of lives and prevented hundreds of thousands of injuries (and pays out tens of billions of dollars to injured workers and their families every year) is preposterous and is entirely unsupported by the facts.

Your story asserts that 33 states have “cut” benefits since 2003 through legislation which is characterized as having been passed under the guise of reform. This is far too sweeping of a statement. A system as large as workers compensation, where costs are driven primarily by the same complex factors driving healthcare costs across the United States, is in constant need of monitoring and fine tuning. Many of the changes simply mirror changes in the health care system overall. Greater control by insurers and employers over physician choice or treatments rendered, for example, is part of a broader transition away from fee-for-service arrangements and towards managed care, which is demonstrably better at controlling costs without losing treatment efficacy.

Other changes, such as establishing a formulary of approved drugs, are designed not only to control spiraling prescription drug costs but to reduce the number of prescriptions for highly addictive drugs such as opioids, which have been grossly overprescribed and even resold on black markets.

Several bills presently before state legislatures today would no doubt qualify as a “cut” in benefits under the ProPublica/NPR definition, but which any reasonable person would conclude make perfect sense. One good example is New Mexico, where there is a bill (H.B. 238) pending that would require workers comp wage benefits to be reduced in proportion to the worker’s degree of intoxication at the time of accident or death. Yes—it’s true—in most states today, workers who are drunk or high actually receive 100 percent of their benefits if they injure or kill themselves (and potentially others) on the job. Most people would agree, however, that it’s not good public policy to effectively subsidize on-the-job intoxication and would view the restructuring of benefits in this context as quite reasonable.

Also, regarding the accusation that reforms have been pushed by “big business and insurance companies on the false premise that costs are out of control,” ProPublica and NPR would have benefited from looking at actual data rather than making unsubstantiated claims that in turn lead to false conclusions. In fact, by any reasonable standard costs were out of control. Between 1991 and 2009 the average annual increase in the medical costs of a workers comp claim severe enough to cause an injured employee to miss work was 7.7 percent, according to NCCI, nearly double the 3.9 percent increase in healthcare costs in general and more than triple the average annual increase in the Consumer Price Index of 2.5 percent over the same time period. Put differently, workers comp medical costs increased by 277 percent between 1991 and 2009, while health care costs in general rose 100 percent and overall consumer prices were up 56 percent. Since 2010 workers comp cost increases have been generally in line with the pace of health care inflation overall.

The authors reach several other spurious conclusions based on this false premise. It is alleged that because workers comp costs per $100 of workers’ wages fell over the years between 1991 and 2014 while health insurance and pension/retirement costs rose sharply, that this is prima facie evidence of a cheapening of workers comp benefits. Nothing could be further from the truth—or the facts. The authors miss a fundamental point—the workplace has become demonstrably and materially safer over the past quarter century. The incidence rate of injury and deaths on the job fell—translating into lower costs. More important, fewer workers are injured and more are alive than would be the case if workers comp insurers and employers were not so focused on safety.

ProPublica and NPR also make some unsourced and inaccurate statements about profitability in the insurance industry. The authors, without citing any source, assert that insurers in 2013 had their most profitable year in over a decade, with a “hefty” 18 percent return. Wrong. According to the National Association of Insurance Commissioners, workers comp return on net worth was just 7.2 percent that year, less than half the figure cited in the article. The average return over the decade from 2004 through 2013 was just 7.1 percent. The returns over that 10-year span ranged from 3.9 percent in 2010 to 10.1 percent in 2004, but not in any year did returns even remotely approximate 18 percent. Once again, the data used to support ProPublica’s premises must be called into question.  We would be happy to supply you with the actual data calculated and published by state insurance regulators.

Workers compensation, a century after its inception, remains as vital as ever to virtually every worker in the America. Benefits can and do vary from state to state but in no state are workers left without the important safety net that workers compensation provides. Though large, the workers comp system continues to adapt to rapid changes in the workforce, the workplace, the economy and the U.S. health care system. Insurers, employers and workers are united in their agreement that that the safety of workers is paramount and that for those who are injured there is a system that works for their benefit, helping them to achieve maximum medical recovery and return to work as quickly as possible.