August 2015

Legislatures in many states have new issues to deal with regarding workers compensation insurance, but more importantly, workplace safety.

The elephant in the room is medical marijuana. Now that states have legalized medical marijuana, is it legal to drug test for that substance? Certainly the reasons for testing have not changed. Can employers test for it and then require any positive test be backed up with a doctors prescription? Legislatures struggle with the consequences of these laws now, and will for the next few years.

Somewhat connected to the medical marijuana question is drug formularies. Formularies are essentially a list of preferred drugs to use including generics. Doctors treating workers’ compensation injuries are required in some states to follow the guidelines and prescribe the pre-approved medication only, not the branded version of the drug. The cost savings has proven to be small, but worth pursuing.

Companies opting out of workers compensation is under review. So far, only two states have an opt out provision, and so few participants do not allow a meaningful analysis. Texas and Oklahoma allow opt outs, but both states are currently reviewing changes to the program. South Carolina and Tennessee are considering this option. The new workforce of part-time and independent contractors will muddy these waters even more.

Over the last decade, more attorneys have become involved in workers’ compensation claims. Originally and still essentially a no fault system, minimum litigation is a goal. States are considering capping legal fees in workers compensation cases, which, on the surface, suggests the most outrageous employer behavior will be difficult to fight. The over-litigated smaller claims will continue being pursued. This topic is worth watching in the state courts.

The most common cost containment legislation involves fee schedules. Overall, the medicare fee schedule acts as a basis for workers’ compensation allowable fees. With the Affordable Care Act inception, this model may change. Cost containment is, however, a universally important issue.

Allowable drugs in the workplace, cost containment, and corporate financing of costs lead the legislative agenda for workers’ compensation this year.

Wrap-ups cover the risks associated with an overall development project from inception to harvest. Rather than each individual contributor handling their own risk management, an overall program is implemented for workers’ compensation, general liability, even professional construction management.

Either the general contractor or the owner provide the master policy, and then the subcontractors and various stakeholders join by certificate or additional insured status.

These arrangements are becoming more popular in response to the contracting industry. Multi-state mega-contractors hire smaller, even boutique firms of craftsmen to detail the project. Risk managers tend to over-request limits from these small firms, eliminating them from competing for the work. The crew installing marble in an elevator lobby does not require ten million dollars of umbrella coverage over a two million dollar general liability policy. Nor does the suspended ceiling company.

The general contractor does need high limits, as does the owner. They don’t need to eliminate the best craftsmen over a relatively inexpensive add-on to their own policies.

The solution is the wrap-up.

Each contractor contributes to the insurance pool with proportionate payments based on contract amount. Overall, everyone receives better protection for less money, fewer cross suits, and centralized, cooperative site safety rules. The wrap-up reduces paperwork associated with chasing down certificates and spot checking legitimacy of the paper work.

Negotiate a site insurance premium and control that cost. The better spread of risk should allow for some discounts. Reduce the number of safety inspectors and conflicting advice.

Set safety rules for the site in terms of proper attire, personal protection, and documentation of the safety program and claims.

Require the contractor with the most control of a work area to be responsible for that work zone. Enforce that authority.

Wrap-ups reduce administrative costs overall, provide security that all contractors are covered more than adequately, reduce claims among the contractors, lower project costs, and lessen the conflicting and time-consuming effects of too many loss control providers.

Check out wrap-up solutions for your next multi-million dollar project.

Pay-as-you-Owe (PAYO) is fast becoming a premium structure for modern workers compensation policies. Since payrolls shrank and grew dramatically over the past eight years, business has demanded a way to smooth out workers compensation payments to more perfectly reflect current operations.

Wild swings between estimated premium and actual audited premiums have been an issue for agents as well. Large return premiums mean large return commissions. When an audit affects last year’s commission earnings and then the current year is adjusted accordingly, the agent loses two times the reduction in one year. A financial burden proving too much for many agencies.

The many advantages to PAYO include:

1. Cash flow for the insured.
2. Premium payments align with pay periods or monthly.
3. Pay electronically, online.
4. Available at relatively low premium levels.
5. Easier audits
6. Reduction of audits with disproportionate changes in premium.
7. Easier for agents to monitor changes in operations.

Of course, insureds enjoy better cash flow when they can tie premium payments to current operations. Agents appreciate PAYO too. It’s much easier to catch wild swings in the size of operations, and therefore, the appropriateness of coverage or plan design for the insured.

PAYO premiums produce reliable commissions. The agent can count on that premium to be earned. The agent can budget accordingly.

One of the biggest sources for client disgruntlement has been audits. Sometimes because of the size of the audit, but usually the timing of both the audit and the additional premium demand are inconvenient.

Any seasonal business, or business with uneven, or maybe unpredictable payroll benefits from PAYO. Business that moves among states, like a road crew for a musician, or a professional sports team, benefits by paying the correct state rate when picking up local labor. In effect, each pay period is a mini-audit.

Can PAYO benefit your business? Probably so.

The effects of Employment Practices Liability Insurance (EPLI) on the Affordable Care Act (ACA) and by extension, Workers’ Compensation Insurance (WC) has not yet been fully understood.

Employers are sued for unfair labor practices such as wrongful termination, unfair pay, discriminatory hiring practices, and now, cutting employee hours below thirty per week to avoid inclusion under the ACA.

Under the Employees Retirement Income Security Act(ERISA), employers cannot interfere with employees benefits. As employers reduce an employee’s working hours to disqualify them from company paid ACA benefits, some courts are considering whether this constitutes interference.

The ACA, given its universal nature, brings into question the no-fault medical aspects of workers’ compensation, particularly for independent contractors. Can a company safely assume their independent contractors have full medical benefits as a result of ACA? The ACA does not mention a coordination of work related medical costs with workers’ compensation.

These facts combined lead to more part-time workers and independent contractor status. Both employment conditions move the employee to a home office or remote location, further shifting traditional company overhead costs to employees.

Premium for part time employees is charged as payroll multiplied by the rate. In competitive states, insurance companies give fewer discounted rates to companies with a high percentage of part time employees. If an employee only works twenty hours per week, adequate safety training takes twice the percentage of time compared to a traditional work week. Safety becomes expensive.

Independent contractor status solves the thirty hour threshold issue, but complicates the workers’ compensation issue. Technically, the independent contractor should provide a certificate of insurance to the employer. If the ACA does not coordinate benefits for job related injuries, the independent contractor pays for the same benefits twice.

If the company provides the workers compensation, their carrier will certainly raise the rates for covering uncontrollable workers.

These issues will be worked out over time. Until then, keep the EPLI in force with higher limits.