It's high noon for worker's comp - Special Report - The 1990s: What's Ahead for Health Benefits - illustration

It's high noon for workers' comp

Workers' compensation specialists are struggling to hold down costs. Or else.

With no end to rising medical costs in sight, workers' comp specialists are groping for ways to hold down spending. At issue is the fundamental structure of workers' compensation itself and whether it's possible to curb expenditures while allowing injured employees full choice and free access to providers with no cost sharing.

A critical juncture

Workers' comp has reached a critical juncture. Authorities contend that if the remedies proposed by legislators, employers, and insurers--including provider networks, fee schedules, utilization review, and copayments and deductibles --don't ease the cost crisis, workers' comp will have to be restructured as more of an employee benefit and less a statutory right. Here's a closer look at what may lie ahead.

Managed care

"Among employers and lawmakers, there's a steady push to move away from a totally free-market workers' comp system," observes Charleston, W.Va.-based workers' comp expert Judy Greenwood. "With costs the way they are, the move to managed care is unavoidable."

Managed care in workers' comp is still in its infancy. "We're years behind health care benefits in that area," says John Burton, professor and workers' comp expert at Cornell University's School of Industrial and Labor Relations in Ithaca, N.Y. Indeed, legislators, employers, and insurers have only just begun to look at such options as prepaid health plans and preferred provider organizations.

A major reason for the delay: The workers' compensation system is actually a composite of 51 different systems and many jurisdictions prohibit employers from negotiating and contracting with providers for workers' comp cases.

Twenty-nine states are "free choice," which means that workers injured on the job are guaranteed the right to choose their own physicians. The right of free choice is increasingly being questioned, however.

Provider networks

"Provider networks are the wave of the future," predicts John Matzner, research director of the National Foundation for Unemployment Compensation and Workers' Compensation, Washington, D.C. "Soon nearly all states will allow HMOs for workers' comp as an option, even if the right of free choice is still on the books."

Though California has a free choice system, it has also set up PPOs for workers' comp cases. Under state law, unless employees specify a preferred doctor when they're hired, employers can pick the physician.

In a recent survey of companies that belong to the California Workers' Compensation Institute, 77 percent of respondents have some type of contract with a PPO. Preliminary study results show insurers saving 22 percent (over usual fees) through the use of PPOs.

Labor's concerns

Organized labor fears that employers are trampling on the fundamental right of injured workers to choose their own physician.

"The right to choose is basic to workers' comp. That's what makes it different from health care benefits. Indeed, workers' comp is not a benefit--it's a statutory right," argues James Ellenberger, workers' comp expert at the AFL-CIO in Washington, D.C.

Ellenberger has another argument against PPOs, one that appeals to employers' sense of economics. "Some studies suggest that when workers are forced to use the doctor their employer picked, they take longer to return to work."

A 1986 study of long-duration workers' comp cases (18 months or more) conducted by the National Council on Compensation Insurance showed that workers who chose their own physicians returned to work sooner.

Other strategies

Some states are experimenting with fee schedules for all medical services, subject to aggressive utilization review. "Fee schedules without UR don't work," says David Durbin, senior research economist, the National Council on Compensation Insurance in New York. "Fee schedules only work until physicians start to shift costs. Without UR, providers will do more treatment than is necessary."

The state of Washington has a DRG (diagnosis related group) system for inpatient care and fee schedules--monitored by a UR program--for outpatient care. Washington expects to save millions of dollars annually through DRGs and fee schedules. About 15 other states use fee schedules.

Fee schedules reduce medical expenses in workers' comp by 9 percent to 15 percent, according to an NCCI study comparing three states that have fee schedules with eight that don't.

In the future, more and more states will be taking a hard look at fee schedules and UR, says Matzner. Legislators hope these steps will help cut down on inappropriate and excessive treatment --including the common practice of treating non-work-related injuries as workers' comp cases.

Cost sharing

Even so, HMOs, PPOs, fee schedules, UR--all are just Band-Aid solutions that won't staunch the flow of dollars spent on workers' comp, some experts say. The solution, they maintain, is to persuade workers to accept deductibles and co-payments.

"Whatever the health care program is, there must be incentives for [employees] to help manage their expenses," says Stephen Haase, corporate manager of workers' comp for Boise Cascade Corp. in Boise, Idaho. "Does that mean deductibles?" he asks. "I'm not ready to say that, but tell me, are there other ways to make employees have a stake in managing costs?"

Says workers' comp expert Greenwood: "More and more people are talking about deductibles, although no one has come out openly in favor of them."

Labor disagrees

Such medicine may not go down easy--especially with labor. Union officials argue that workers injured on the job are entitled to comprehensive and free care; workers' comp is a social insurance program in which employers bear the sole burden of paying medical bills, they say.

"If you put in deductibles, what you're doing is blaming the victim. That was never the intention of the workers' comp system," says the AFL-CIO's Ellenberger. "Employers are striking at the very heart of the workers' comp system."

Surprisingly, C. Clarke Imbler, senior vice president of the Alliance of American Insurers, concurs. "Deductibles violate the social contract established when workers' comp was started years ago. We don't believe that at this point the employee has to bear part of the cost of treatment."

Should support grow for employee cost sharing, the debate about deductibles would probably turn into a showdown between unions and employers--with legislators caught in the middle.

Ready to fight

Labor is already gearing up for battle. "A lot of labor people are disgusted with the whole workers' comp system. They're ready to throw up their hands and get rid of it," says Ellenberger. "If companies want to share costs, then we might say `Let's ditch the system,' and go back to the tort system.

"If companies think costs are high now, wait till they see what the courts can do," he adds.

Union officials may be drawing their swords too soon, however. Employee cost sharing would demand a fundamental change in workers' comp--a change that most experts say won't happen anytime soon.

Political risks

"No politician will stick his neck out in support of deductibles; the political risk is just too great," says Cornell University's Burton. "But I won't say that this change won't happen sometime in the next 10 years. Just a year ago, no one even dared to talk about deductibles.

"In the future, workers' comp may have to go the way of health care benefits and not be as generous with its payments. There may be no other way to go."

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