July 8, 1998 Speech by Laura Kersey
American Insurance Association
Washington, D.C.
Good morning. First, I’d like to thank you for inviting me to speak today. My topic is "Legislative Survey of SAWCA States," and there are five major legislative issues that I would like to discuss: medical privacy, anti-managed care legislation, fraud, drug-free workplace, and employee leasing. Then, I will briefly touch on reform issues and the electronic database interchange project, and conclude with AIA’s legislative predictions for next year.
The first issue I would like to discuss is medical privacy legislation. Medical privacy legislation became a hot topic this session and we will likely see more of it next year. These initiatives attempt to protect patient’s privacy interests in their medical records by imposing restrictions on carriers’ access to such information and carriers’ ability to disclose that information. The legislative proposals often encompass workers’ compensation insurance, either directly or indirectly, without recognizing the differences between health insurance and property casualty insurance. Property casualty insurance differs from health insurance in that the policyholder is typically not the party claiming benefits. Rather, the policyholder is a party against whom a third party is asserting legal rights and to whom the insurer owes a contractual duty to defend and indemnify. For this reason, we have argued that it is imperative that property casualty insurers have unimpeded and timely access to medically related information to meet their obligations to their policyholders and under the law.
As distinct from other forms of property casualty insurance, workers’ compensation insurers must be able to exchange health information without authorization in order to effectively manage workers’ claims and promote prompt return to work. Workers’ compensation is a no fault system -- the insurer’s obligation is to pay benefits within a brief period following the filing of a claim. For this reason, it is imperative for the insurer to have unimpeded access to medical information to evaluate the merits of a claim and to manage medical treatment in order to ensure expeditious recovery and return to work. Prompt return to work is important for sound disability management -- not only is it in the best interest of the injured worker but it also limits the insurer’s payment of indemnity benefits for lost wages.
We saw privacy legislation introduced this year in Delaware and North Carolina. Delaware House Bill 295 contained broad privacy protections regarding obtaining information from managed care organizations. The bill would have required managed care organizations to ensure the confidentiality of a patient’s prior medical history, medical record and claims information, except where disclosure of this information is required by law, and would have forbidden a managed care plan from releasing individual patient record information without prior written authorization of the patient. The bill did not carve out any exceptions for workers’ compensation insurers and would have severely restrained a carrier’s ability to obtain necessary information from a managed care organization. AIA worked to get language into the bill which would have allowed workers’ compensation insurers to obtain medical information necessary to process a claim and carry out other legitimate insurance functions. However, the bill failed to pass.
Legislation was also introduced in North Carolina that would require insurers to receive express authorization before any medical records or other medical related information could be exchanged (SB 1288). The bill, as originally drafted, applied to all property-casualty insurers. However, the bill was recently amended to exclude workers’ compensation insurers.
In perhaps the most far-reaching development, at the June meeting of the National Association of Insurance Commissioners, the NAIC moved closer to adopting a new model privacy act. The NAIC’s Health Information Privacy Working Group completed action on a new model bill which was ratified by parent committees and is expected to be approved in plenary session at the fall NAIC meeting. Because the model is expected to be approved, we will likely see legislation based on the Model introduced in several states next session.
The NAIC Model establishes comprehensive rules for collection, use and disclosure of protected health information and is applicable to all insurers, including workers’ compensation insurers, self-insureds, and group self-insurance funds. The Model requires insurers to implement policies to guard against unauthorized collection, use, or disclosure of protected health information. Carriers can not use protected health information without a valid written authorization from the subject of such information. However, workers’ compensation insurers fall under an exception to the authorization requirement which states that carriers may "collect, use, or disclose protected health information when the protected information is necessary to the performance of the carrier’s obligations under any workers’ compensation law or contract."
Even though workers’ compensation insurers are exempt from the authorization requirement, AIA has concerns that the exemption could be interpreted too narrowly so as to require authorization for many claims practices that are not strictly "obligations" under "workers’ compensation law or contract," such as job modification plans or return to work programs. Furthermore, carriers that fail to comply with the act are subject to civil and criminal sanctions.
AIA believes that the NAIC Model is a significant improvement from earlier versions which would have exposed carriers to significant damages and class action lawsuits for minor violations of the Act. However, we still have reservations regarding some aspects of the Model. These include restrictions on a workers’ compensation insurer’s authority to share information with an employer, such as loss runs and information regarding that employer’s experience rating. In addition, the Model allows workers to have access to unit statistical reports under the Act’s broad definition of "protected health information," even though there is no real value to the worker in obtaining this information. Furthermore, the Model protects information developed in preparation of litigation, but many claims are resolved short of litigation. Thus, we need to clarify that insurer claim files are protected from disclosure.
Next, I’d like to discuss anti-managed care legislation. These bills are an attempt to erode the goals of workers’ compensation managed care, which are (1) to ensure that injured workers receive necessary and appropriate medical care, (2) to ensure that medical care is provided in a manner that promotes timely and effective return to work, and (3) to eliminate unnecessary costs. AIA has sought effective managed care legislation, especially in states favoring employee selection and control over the treating provider. Permitting worker selection of providers from an insurer’s pre-approved network is a practical compromise. It preserves significant discretion by the worker to select a treating physician, while it gives insurers a greater ability to effectively manage medical treatment. It also can reduce disputes over medical treatment because the insurer has a pre-existing relationship with the provider.
Managed care in workers’ compensation offers employees high quality medical care and an enhanced ability to return to employment, while permitting employers and insurers to better coordinate medical treatment and rehabilitation. The use of managed care in workers’ compensation improves the quality of care by (1) reducing the use of inappropriate medical procedures; (2) promoting successful return to work and better case management; (3) focusing on injury prevention and wellness; and (4) identifying poor quality providers. The use of managed care in workers’ compensation also ensures fair treatment of injured workers, and lowers the costs of care while protecting quality of care.
Managed care is also important because workers’ compensation requires managing the delivery of medical treatment, not merely to treat an injury or condition, but to ensure the employee’s expeditious return to work. It is this return to work objective that is a crucial distinction between medical treatment under workers’ compensation and medical treatment for non-work injuries and conditions. A different mix or intensity of treatment may be necessary for treating work injuries. For example, more intensive therapy or more costly medical care may be required to allow faster return to work than treatment for non-work injuries. Workers’ compensation places a premium on the quality of care rendered, because unnecessary medical care or the wrong treatment not only inflates medical costs, but may also impose an unnecessary risk to the employee’s health and delay return to work. As a result, the employee’s return to productive life is delayed and indemnity costs are inflated.
There was less activity on the state level this past year than in prior years. There were a few reasons for this: First, legislators were focused on enacting legislation qualifying their states for financial participation in a new federal child health care program. Second, legislators also were diverted to enacting legislation meeting federal health care requirements under HIPAA. A third reason may be the absence of any true grassroots reaction to managed care, notwithstanding the anecdotes about its shortcomings. Maybe people are more satisfied with their health care than we are led to believe by watching the news.
However, legislation was introduced in Kentucky this session (H.B. 847) that would have required workers’ compensation managed care systems to permit employees to choose their own primary care provider from a list of health care providers within the plan. The bill would also have allowed any employee to use a participating specialist within the plan when the employee’s medical condition warrants it. It also would have required all managed care plans to provide an employee with access to a health care provider qualified in the area of expertise for a second opinion from an appropriate health care provider located in a geographic area convenient to the employee. Furthermore, it would have required all managed care plans to offer out-of-network medical services that would allow covered employees to receive covered services from out-of-network health care providers without having to obtain a referral, when treatment is unavailable through the managed care plan.
AIA objected to this bill because its enactment would have unraveled the hard-won reforms that have reduced costs in Kentucky and brought greater financial stability to that system.
In addition to the legislation introduced in Kentucky, a group of chiropractors and personal injury attorneys known as "Floridians for Health Care Choice," proposed an amendment to the Florida Constitution that would have created a new constitutional right to "free, full, and absolute choice in the selection of health care providers." It would have prevented insurers, managed care personnel, employers and other third parties from controlling a citizen’s selection of health care providers. However, the Florida Supreme Court struck the proposal from the ballot for failure to meet statutory and constitutional requirements. AIA joined a coalition of small businesses, government officials, and health care providers, known as "Floridians for Quality Patient Care," in filing amicus briefs before the Court seeking to stop the ballot initiative.
While the Florida initiative and Kentucky bill failed to pass, we expect to see similar challenges in the next legislative session. In addition, we expect to see similar legislation arise in other states as the anti-managed care backlash continues.
Anti-fraud legislation was enacted this year in Florida, Georgia, and Tennessee. Florida passed strong fraud legislation relating to workers’ compensation (SB 1406) which increases penalties for workers’ compensation fraud and extends the statute of limitations for fraud from three to five years. The legislation also increases the power of the Workers’ Compensation Division to obtain employer records. The legislation was the result of a Florida grand jury report and growing concerns that workers’ compensation fraud is a major problem in Florida.
In addition, Georgia passed legislation (H 1327) to provide criminal penalties for employees who fraudulently retain workers’ compensation benefits.
Fraud legislation also passed in Tennessee (SB 1973/HB 2803) which provides that workers’ compensation fraud violations should be punished as theft and lowering the felony threshold to $500.
Drug-free workplace legislation has been popular in the south over the last couple of years. This year, several states passed legislation amending their drug-free workplace laws. Florida Senate Bill 1972 amended the provision of the law creating an irrebuttable presumption that the accident was caused by the employee’s intoxication if the employee tested positive for drugs or alcohol. The Florida Supreme Court, in Recchi America Inc. v. Hall, held that the irrebuttable presumption provision was unconstitutional.
The amended provision provides that if an employer has implemented a drug-free workplace plan, an employee may rebut the presumption by showing there is no "reasonable hypothesis that the intoxication or drug influence contributed to the injury." In the absence of a drug-free workplace program, the presumption may be rebutted by clear and convincing evidence that the intoxication did not contribute to the injury.
In addition, Maryland enacted legislation (H 372) providing that an employee is not entitled to certain non-medical workers’ compensation benefits if the injury or occupational disease was a primary result of the employee’s influence under an unprescribed controlled dangerous substance or alcohol.
Tennessee also enacted a law (HB 2803) providing that after an accident resulting in an injury, an employer who has established a drug-free workplace must require an employee to submit to a drug or alcohol test.
While we understand that drug-free workplace programs are politically popular, we oppose mandatory premium credits for employers that implement such programs. Mandatory credits constitute political interference in the ratemaking process. Furthermore, the insurance pricing mechanism is designed not to reward or punish behavior, but to accurately price insurance based on the actuarial expectation of future losses. The insurance pricing mechanism already reflects an employer’s good experience and in doing so already provides strong financial incentives for effective injury prevention. Because base rates need to be adjusted to ensure the same premium is collected to finance the benefit delivery system, mandatory credits have detrimental effects on the equitable distribution of workers’ compensation costs among employers as well as the adequacy of rates charged to individual employers.
The uniform experience rating plan automatically adjusts an employer’s rates on a prospective basis, according to its own past experience as compared to other employers in the same type of employment. An added credit on top of the experience modification would be double counting for an employer who already has an effective program. For an employer who newly adopts such a program, a credit would deviate from the principle that rates should be based on objectively determined results rather than subjective procedural steps that may appear to be effective but in reality produce little difference in claim outcomes. And it would mean that an employer with little risk of intoxication-related injury would enjoy the same cost reduction as an employer whose employees have frequent injuries.
Furthermore, since there is no means to determine in advance how much injury costs might be reduced, there is no assurance that adequate premiums would be collected in the aggregate to cover total claim costs because there is no way to tell whether premium lost due to the credit would be equally offset by a reduction in claim costs. So, there are sound policy and insurance pricing reasons for rejecting mandatory credit initiatives, however politically attractive they may be.
Employee leasing is another area where we expect to see legislative activity next year. Employee leasing became popular a few years ago, however many companies could only obtain coverage through the residual market. Now, most employee leasing companies are insured through the voluntary market.
AIA endorses the NAIC Employee Leasing Model Law and Regulation because the Model ensures that client-employers of the leasing company cannot sanitize their poor experience simply by becoming a client of a leasing company. The Model provides adequate protections against potential abuses by requiring leasing companies who have client-employers written in the residual market to obtain "multiple coordinated policies" or separate policies for each client-employer. The client-employer cannot be written through the leasing company master policy because it would dilute the client-employer’s experience.
Florida passed employee leasing legislation this year (S 1372) that closely resembles the NAIC Model legislation; however, Florida’s law does not require leasing companies to obtain separate policies in the residual market. It does, however, require leasing companies to maintain experience data to allow calculation of an experience modification factor upon termination of the leasing agreement.
In some states, legislation has been pushed that would require multiple coordinated policies for voluntary market risks as well as residual market risks. This goes even further than the NAIC Model, whose impetus was problems with pool risks escaping their poor experience through leasing. We see no need to go this far and would oppose any legislation imposing such requirements.
Let me turn now to state reform efforts. There were major attempts this year by the trial bar to roll back the recent workers’ compensation reforms in Kentucky. The 1996 reforms have already produced significant cost savings to employers. While the initiatives were defeated this session, the trial bar is already gearing up for a fight for the next legislative session. In addition to legislative initiatives, Kentucky’s reform law is also coming under attack through court challenges challenging the constitutionality of the law.
While the Kentucky reform law is under siege, there continue to be attempts to reform Delaware’s workers’ compensation law. Delaware has never passed workers’ compensation reform despite the fact that rates have risen significantly in the state while they are dropping throughout the rest of the country. Delaware does not impose any restrictions on medical costs (such as fee schedule) or limitations on selection of treating providers, which are increasingly common in other states. The reform issue will most likely be back next year as long as costs and rates continue to rise.
I would like to briefly mention the electronic database interchange project that is ongoing in several states. We are concerned that a few states have mandated that carriers file injury reports electronically with the Department. As you know, AIA supports the EDI project. However, we oppose state’s mandating carrier participation before states are up to speed electronically. We would urge state regulators to delay adopting or implementing any changes in workers’ compensation data reporting requirements, including EDI requirements, until after the Year 2000 problem has calmed down. This step is necessary to ensure that carriers are directing all available resources to addressing issues related to the Year 2000 problem. Postponing any new requirements, including changes in existing requirements, will help carriers ensure that injured workers are not affected by system failures due to Year 2000 bugs. Postponing any new requirements is also critically important for those state agencies that are not yet Year 2000 compliant.
Let me conclude with AIA’s predictions for the next legislative session. In addition to the issues that I’ve already mentioned, we expect to see legislation in Georgia to expand the definition of injury to include emotional or mental injury. Last year, the Georgia Supreme Court held that workers’ compensation benefits can not be paid for psychological injuries unless there is also evidence of physical injury. The worker at issue had been retrieving caskets from a cemetery following a flood and suffered post traumatic stress disorder after handling decomposed bodies. AIA would not object to legislation expanding the definition of injury to encompass emotional distress when a worker witnesses a traumatic occurrence in the workplace.
In several states next year we will see attempts to repeal second injury funds. Legislation will be introduced in Louisiana to abolish the second injury fund and to alter the assessment base from paid losses to premiums, which was the law prior to 1995. Arkansas is also reviewing the repeal of its second injury fund.
In Oklahoma, legislation is expected to be introduced to abolish the second injury fund. Legislation will also be introduced to privatize the state fund. A recently released legislative committee report recommended a restructured state fund that would write only the residual market – the state fund would no longer write voluntary market risks. Because the fund would not write any voluntary market business, it would be like no other state fund in the country. While AIA does not object to this concept, we believe there are significant issues that need to be addressed such as (1) how the Fund will be regulated to ensure it charges adequate rates; (2) how the Fund’s insolvency will be guaranteed; and (3) whether the private market will be financially exposed.
That’s all I have. I appreciate your time and would be happy to take any questions.
Return to N.C. Industrial Commission Home Page
Return to NCIC Alternate Home Page
N.C. Industrial Commission · Dobbs Building · 430 North Salisbury Street · Raleigh, NC 27611