Public Policy Detail

Background

Workers' Compensation is a no-fault system designed to eliminate the issue of legal and financial liability for workplace injuries and instead concentrate on the employer/employee win-win of getting workers back on the job. It is financed through insurance, which evaluates claims, pays the costs of medical expenses, and of lost wages due to injuries. In addition, if the worker is unable to return to the job due to the injury, the costs of vocational rehabilitation are also borne by the system. Finally if the employee is permanently disabled, compensation is paid to replace lost wages.

Cyclical Rate Increases and Scrutiny

Over the years, premiums paid for workers' compensation insurance have fluctuated, with periods of stability as well as sharp increases. When these costs have gone up, scrutiny of the system by legislative and administration study committees has resulted in recommended changes designed to streamline the system and ensure that claims are paid fairly and only legitimate claims are paid.

This year is no exception. After a period of relative stability, premiums have again risen sharply. These increases affect businesses differently based on their industry and claims experience, but for certain businesses there can be a significant impact that affects their viability in a struggling economy.

VBSR Principles

VBSR believes that the balance between the obligations of employers and the rights of injured workers should be maintained. The Department of Labor and Industry should work actively to better educate, engage, and motivate employers, employees and the medical providers in Vermont to achieve this purpose cost-effectively. Any proposals to change the WC system should be evaluated in accordance with the following principles:

• Workplace safety should be the number one priority of the Department of Labor and Industry.
  Prevention and workplace safety are the best ways to avoid workers' compensation claims. Establish a loss management program that is an incentive program for employers to reward employers to do what they should be doing. Massachusetts has such a program that reduces premiums for employers who do an outstanding job. Effective programs involve employees in the development, operation, and improvement of all elements of the workplace safety and health program.
• Case management is key to getting employees back to work.
  Employers should be encouraged to make the reintegration of an employee to the workplace a collaborative process and to work with insurers who use the proven tool of comprehensive case management planning to help their employees do so.
• Control medical costs, especially prescription drugs.
  Efforts to reduce the cost of WC insurance premiums should concentrate first on controlling the cost of medical services and pharmaceuticals, which is the major cost element in Vermont. The rates for providers should be re-examined, with emphasis on hospital rates. The use of generic drugs should be encouraged.¹
• Discourage fraud by employees, employers, and providers.
  Enforcement is essential to maintain credibility in fairness for both employers and employees. Fraud and WC coverage compliance need to be aggressively addressed by BISHCA and Labor and Industry.
• Wage replacement calculations should not adversely affect injured workers.
• Explore alternative delivery systems for insurance.
  As a small state with many smaller employers, Vermont has minimum leverage with major national insurance carriers. Thus of the three system alternatives—a changed private insurance delivery system, a state workers' comp fund system, or a hybrid system comprised of both a state fund and private insurers—either a state workers' comp fund system or a hybrid system comprised of both a state fund and private insurers offers the best opportunity for the Vermont's WC system to innovatively and cost-effectively achieve its purpose.
• The administration of the system should be efficient and predictable.
  The quicker that an injured employee returns to work, the less cost to the employer. There are measures that can be adopted to monitor cases better, reduce costly continuances and delays. Better accountability can be achieved to hold down the costs. The Department should initiate efforts to avoid hearings by encouraging alternative dispute resolution.

Footnotes

1Medical costs as a percentage of workers compensation benefits in Vermont have grown from approximately 36% in 1982 to approximately 48% in 2000. This pattern of growth is not exceptional, with the same pattern of growth observed in all states examined. The growth in medical costs as a percentage of total benefit costs is the expected result of medical inflation that is typically greater than wage inflation. (Source: Mercer Risk, Finance & Insurance Consulting, November 15, 2003 - Page 8)  

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