Call to Order and Roll Call
The 1st meeting of the 2016 Kentucky Workers' Compensation Task Force was held on Friday, August 19, 2016, at 10:00 AM, in Room 131 of the Capitol Annex. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Alice Forgy Kerr, Co-Chair; Representative Chris Harris, Co-Chair; Representative Adam Koenig; Steve Barger, JD Chaney, Ray Daniels, Joe Dawahare, Rick Fouts, Larry Gardner, Michelle Landers, Bill Londrigan, Commissioner Dwight Lovan (ex officio), Deputy Secretary Mike Nemes as representative for Secretary Derrick Ramsey (ex officio), Jeff Roberts, Melissa Stevens, Tim Sturgill, Tom Underwood, and Tim Wilson.
Guests: Dr. John Ruser, CEO and President, and Laure Lamy, Regional Director, Workers’ Compensation Research Institute; and Commissioner Dwight Lovan, Department of Workers’ Claims, Kentucky Labor Cabinet.
LRC Staff: Carla Montgomery, Andrew Manno, Adanna Hydes, and Sasche Allen.
Welcome
Co-Chairs Senator Alice Forgy Kerr and Representative Chris Harris welcomed the members and explained the purpose and expectations of the task force. All members of the task force introduced themselves for the record.
Comparing Kentucky’s Workers’ Compensation System with Other States
Dr. John Ruser, CEO and President, Workers’ Compensation Research Institute (WCRI) compared Kentucky’s workers’ compensation system to other states, and discussed various WCRI studies, the CompScope benchmarking study, and an injured worker outcome survey. WCRI is a not-for-profit public policy research organization with the objective to research important public policy issues in workers’ compensation systems. Its quality of research is assured with external peer reviews, and it does not make policy recommendations and does not take positions on issues studied. WCRI has support from diverse membership including insurers, service providers, employers, labor, state agencies, and independent rating bureaus. Most of Dr. Ruser’s presentation focused on research from the CompScope benchmarking study that compares state workers’ compensation benefit delivery systems. The findings were from the CompScope 16th Edition, however, this was the first time Kentucky had been included in the annual study. It includes 18 states that account for almost 70 percent of all workers’ compensation benefits paid in the United States.
The first part of the study focuses on 60 broad measures that include cost per claim, cost components, expenses for delivering medical and indemnity benefits to injured workers, timeliness of injury reporting, and many other components. The second part of the study focuses on medical payments. Major benefits of the CompScope study are the comparison to other states’ system performance and monitoring of the impact over time of any reforms that have been done.
For the purpose of describing Kentucky and comparing its system to other states, the term “typical” was used, meaning that a particular measure fell in the middle of the distribution of values for the study states. In Kentucky, compared to the other study states, overall payments per claim for claims with more than seven days of lost time were typical. Medical payments per claim were lower than typical due to lower prices, a reflection of reimbursement regulations. Overall expenses to deliver medical and indemnity benefits to injured workers were typical. Medical and legal expenses per claim were higher than typical. Medical and legal expenses would involve medical and legal examinations, reports, and testimonies and depositions of medical experts. Generally, Kentucky has had little change in its cost per claim and other components from 2009 to 2014.
Several graphs and charts were shown with comparisons of Kentucky to the other states in the CompScope study. The data was adjusted for the interstate differences in the injury and industry mix and for wages of injured workers in an effort to make the interstate comparisons more meaningful. The figures also covered claims that occurred in 2012 with experience through March 2015. Kentucky’s costs for all paid claims was 23 percent lower than the 18 state median. The average cost per all paid claims was $7,636 compared to a median of $9,940. One factor that may affect the cost of all paid claims is the fact that Kentucky had fewer claims with more than seven days of lost time. In Kentucky, 18 percent of all paid claims were claims of workers who lost more than seven days of work while the median was 21 percent. The seven day period is significant because in Kentucky no income benefits are payable for the first seven days of disability unless disability continues for more than a week.
Within the Commonwealth, the total payments per claim with more than seven days of lost time were typical with an average of $38,299 and a median of $39,273. There were typical amounts of both indemnity and benefit delivery expenses per claim with only a two percent difference between Kentucky and the 18 state median. Indemnity benefits include payments for temporary total disability, permanent partial disability with lump-sum payments, and permanent total disability and fatality benefits. One system feature that may contribute to these costs is that there is a higher number of weeks of temporary disability in Kentucky. The duration of temporary disability at 16 weeks for Kentucky was three weeks longer than that of the median of states that have permanent or partial disability benefit systems. Another contributing system feature is fewer claims in Kentucky received permanent partial disability or lump-sum payments, but of those cases, the amounts were some of the highest among states that had a permanent partial disability system. An additional factor contributing to indemnity benefit amounts is the statutory maximum average weekly wage rate. More than one in eight injured workers in the state had weekly temporary total benefits restricted due to Kentucky’s statutory maximum average weekly wage rate or about 13 percent as compared to the median state which had 11 percent.
Medical payments per claim were another area that were covered in the CompScope study. In Kentucky, medical payments per claim with more than seven days of lost time were lower than typical. Over a 12 month window, the average medical payment per claim was 13 percent lower than the median state at $10,655. Within a longer time span of 36 months of experience, the average payment per claim of $14,000 was 14 percent lower than the median average. Factors that affect medical payments per claim in Kentucky include prices paid for medical services, outpatient facility payments, and ambulatory surgery center facility payments. A preliminary CompScope Medical Benchmarks study as well as other studies done by WCRI illustrated these factors. Prices paid for professional services in Kentucky were 14 percent lower than the median average. Hospital outpatient facility payments per surgical episode were in the lower group of 33 states in 2014. There were higher payments for common surgical episodes performed at ambulatory surgery centers, however, there was a lower use of these types of centers in Kentucky compared to other states.
Another area that Dr. Ruser covered was benefit delivery expenses per claims. Although most expenses per claim, which would include managed care costs, litigation expenses, and defense attorney payments, were typical, there were a few individual components that diverged from the median state within the study. Medical cost containment expenses per claim, percentage of claims with defense attorneys, and defense attorney payments per claim were all typical compared to the other study states. However, medical and legal expenses per claim were 23 percent higher than the median state at $2,142 compared to $1,738.
Overall and for all components, costs per claim changed little from 2009 to 2014. In that time span, Kentucky had a 2.3 percent increase per year on average compared to the median state that had a 2.8 percent increase. The total cost of indemnity benefits per claim grew slightly slower than the median study state. Both benefit delivery expenses and medical payments per claim grew at a similar rate as the other study states.
Dr. Ruser summarized the WCRI report that analyzed outcomes for injured workers in Kentucky. The study offers assessments of significant results achieved by injured workers in the state and 14 other states. Although historically there has been abundant information about costs, there has not been sufficient research done on how injured workers fare in the workers’ compensation system. WCRI conducted this study by doing a telephone survey to interview injured workers with injuries with more than seven days of lost time three years post-injury about the key outcomes of physical recovery; speed and sustainability of return to work; earnings recovery; and satisfaction and access to medical care. Comparisons amongst states were made while controlling for differences in the characteristics of gender, age, education, marital status, injury type, injury severity, size of employer, industry, and tenure. WCRI considered figures to be similar to the 15 state median if they were within three percent points and considered somewhat higher if more than four to five percentage points. Kentucky was similar in most key outcomes of injured workers except speed and sustainability of return to work. Workers reported a somewhat higher rate of no substantial return to work. Eighteen percent of injured workers in the state reported no return to work or return to work not sustained for at least 30 days due to the injury compared to the 15 state median of 14 percent. Moreover, injured workers reported major issues getting their desired primary provider and desired services but the findings were within one percentage point of the median. Dr. Ruser informed the members that they are welcome to contact him with questions during their deliberations on the task force.
After a question from Representative Adam Koenig, Dr. Ruser said the 18 states for the CompScope reports were chosen based on the size of the state and claiming and cost experience. However, the goal is to add as many states as possible. The states in the study are the states that funded the work. Answering a follow up question, Dr. Ruser explained the goal is to hold constant the mix of workers when performing the CompScope but not the individual state policies because they are what is driving the differences in the data. Also, he said cost of living is not held constant but would take note of it for future research.
Responding to Mr. Joe Dawahare, Dr. Ruser said the measures are per claim and do not reflect unemployment rates. As the economy in any given state will vary so will the total number of claims, but WCRI’s goal is to review the cost per each individual claim.
Addressing Mr. JD Chaney, Dr. Ruser said although this is the first year Kentucky has been included in the CompScope study, most data is over 36 months of maturity and some are at 60 months.
In response to Mr. Steve Barger, Dr. Ruser stated that although 18 percent of injured workers reported having major problems getting their desired primary provider and desired services, there were some that reported having just some problems. The major problems were of a larger concern. He said he would let Mr. Barger know what that particular percentage was that reported just some issues.
Replying to Mr. Tom Underwood, Dr. Ruser explained that data was not gathered about the types of services that would have been denied to injured workers but only the reasons people perceived the services were denied. Unlike the other standardized data, the injured worker study was self-reported. Ms. Lamy added that major problems did not necessarily mean a direct denial and that there were other contributing factors that could have had an influence on the perception of the difficulty receiving a desired service. Dr. Ruser said that in describing some factors that may be responsible for some of the outcomes they observed, the task force members may want to review the longer duration of temporary or total disability in Kentucky of 16 weeks as opposed to the median of 13 weeks as a result of the state lacking temporary partial disability payments. He noted that although he cannot make recommendations, there are suggestive factors within the data.
When Mr. Tim Wilson referenced a presentation Dr. Ruser provided on August 12, 2016, Dr. Ruser explained that even if in that particular presentation it was portrayed that 54 percent of Kentucky injured workers reported that their perceived biggest problem was the employer or insurer did not want care provided, the data is not standardized across the 15 states that were included in the study and that issue is very general. Ms. Lamy followed up by clarifying the 54 percent of injured workers Mr. Wilson was referring to in the other presentation was 54 percent of the 18 percent that reported big problems receiving desired services and not 54 percent of the total number of injured workers in Kentucky. Answering another question from Mr. Wilson, Dr. Ruser confirmed factors such as gender, age, education, and other characteristics were controlled for in the injured worker study.
Workers’ Compensation History and Workers’ Compensation Act
Commissioner Dwight Lovan, Department of Workers’ Claims, Kentucky Labor Cabinet, gave an overview of the history of workers’ compensation in Kentucky as well as the Workers’ Compensation Act. 2016 is the 100th anniversary of constitutional workers’ compensation law in Kentucky. The first Workers’ Compensation Act of 1914 was declared unconstitutional. Workers’ compensation is purely a statutory creation that is considered one of the earliest forms of social legislation. It began as an agreement between labor and industry as the country started to become more industrialized to place the responsibility of workplace injuries and diseases on the industry in which it occurred rather than with the general public. Both employee and employer gained and lost something with the creation of workers’ compensation. The employee gained the expediency and certainty of benefits being delivered but lost certain aspects of a personal injury claim that an injured worker would not receive, such as pain and suffering. For the employer, workers’ compensation is the exclusive remedy, and Kentucky has historically been strong in upholding the exclusive remedy provisions. An employer cannot have tort liability to an employee, and even if an employer is negligent, the employee cannot file suit in circuit court. Workers’ compensation is state specific and varies from state to state, which makes interstate comparisons difficult to do because indemnity benefits, medical benefits, length of benefits, definitions of injury, and almost all other components of the system are going to differ from state to state.
In Kentucky, any person or entity with one or more employees is considered an employer. Under the Kentucky Workers’ Compensation Act, all employers are required to provide coverage either through an insurance company or a self-insurance group, or to be authorized to self-insure their liability. Failure to do so would result in a citation from the Department of Workers’ Claim, as well as other sanctions under statute. Exemptions to the Workers’ Compensation Act include agriculture employees, some domestic workers in private homes, those working for sustenance if with a charitable or religious organization, those covered by federal law, and certain religious organizations, among others. Commissioner Lovan said up-the-ladder coverage can become an issue particularly in the construction industry when there may be a number of subcontractors. In Kentucky, there are six self-insurance groups participating in the workers’ compensation system and 108 self-insured employers that are certified through the Department of Workers’ Claims. The state has a competitive state fund, which is a mutual insurance company that was created in 1994 and known as the Kentucky Employers Mutual Insurance Company (KEMI).
There have been several major changes to the state’s workers’ compensation system. In 1973, major statutory changes were made that included all income benefits becoming lifetime with both permanent partial disability and permanent total disability. The definitions of what constitutes an injury were also modified. At that time the occupational disease portion of the law became more significant. In Kentucky the foremost occupational disease is coal workers’ pneumoconiosis, better known as black lung disease. The 1973 modifications were in effect until more changes were made in 1980. Weekly income benefits increased and permanent partial disability was limited to 425 weeks instead of lifetime. A task force was formed in 1987 that altered the system itself, changing from a part time workers’ compensation board to an Administrative Law Judge system with an appellate body known as the Workers’ Compensation Board. This remained in force without major changes until 1994 when permanent partial disability was addressed substantially and retrained incentive benefits were added to the portion of the law covering black lung disease. In 1996, a special session addressed black lung disease and made permanent partial disability follow a more strict mathematical formula involving the American Medical Association guidelines. Generally, Kentucky is still operating under the 1996 law, although there were small changes made in 2000 and 2002. Therefore, the workers’ compensation system in the state has been fairly stable for about 20 years.
There are other entities that conduct studies on Kentucky’s workers’ compensation system besides WCRI such as the National Council on Compensation Insurance (NCCI). NCCI receives data of all kinds from every insurance carrier that writes in Kentucky. It performs an annual loss cost filing that is presented to the Department of Insurance for its approval. Insurance companies are then given the opportunity to review the Department of Insurance’s loss cost recommendations to determine if they want to alter their premiums. On August 18, 2016, NCCI presented its annual report when it recommended a five percent reduction on the loss cost, which is still pending with the Department of Insurance and is the tenth year in which there has been a recommended loss cost reduction. Overall, from 2006 to the current year, the recommended total loss cost recommended reduction is 53.5 percent. There is not an automatic direct reduction in premiums because premiums are based on different factors and are employer specific. Therefore, KEMI may decide not to reduce its premiums by five percent based on its research, data, and experience. Commissioner Lovan emphasized that the data from NCCI does not include the coal industry and only includes industrial classes. The recommendation for the coal industry was a 25 percent increase on underground mining and 18 percent increase on surface mining. There are unique issues concerning the coal industry and workers’ compensation.
Another study that is done biennially is the Oregon workers’ compensation study, which reviews all states’ workers’ compensation systems. It compares about 50 employment codes that are considered to be consistent across all states and compares them in terms of cost per dollar in workers’ compensation. The rating system that the Oregon study uses makes a rating of one the worst and 50 the best. In 2014 Kentucky was rated at 44 compared to being rated 27 in 2012, as far as cost to employers. Commissioner Lovan stated that other states look to Kentucky as an exceptional example for a stable workers’ compensation system. He also highlighted that NCCI reported medical expenses are 57 percent of every workers’ compensation dollar compared to 68 percent nine years ago.
After a question from Mr. Tom Underwood, Commissioner Lovan said there is an individual breakdown of the medical expenses he spoke of at the end of his presentation. NCCI has done a study on pharmaceuticals in particular, and within the last 10 years pharmaceuticals have moved from six percent of the total medical dollar to about 20 percent of the total medical dollar.
Responding to Ms. Melissa Stevens, Commissioner Lovan said that NCCI’s report gave a breakdown of temporary total disability claims, permanent partial disability claims, permanent total disability, and fatalities with temporary total disability claims being the largest percentage of claims that had indemnity that were not medical only.
Addressing Mr. Bill Londrigan, Commissioner Lovan clarified how to calculate the loss cost filing figures, confirming that from 2006 to current the recommended total loss cost recommended reduction is 53.5 percent.
Replying to Mr. Jeff Roberts, Commissioner Lovan said that the NCCI report did not take into account lost adjustment expenses or medical legal expenses in the calculation of workers’ compensation dollars spent. NCCI reporting that medical expenses are 57 percent of every workers’ compensation dollar is just a straight impact between indemnity and medical expenses and not necessarily the associated costs of either.
Addressing comments made by Co-Chair Harris, Commissioner Lovan stated the most significant change in recent years to the workers’ compensation system was due to court decisions in Gardner v. Vision Mining (2009) and Joe Martinez v. Peabody Coal (2010), which forced the Kentucky Court of Appeals to find the provisions of KRS 342.316 regarding the consensus process and panel process used to determine eligibility for black lung benefits to be unconstitutional under the equal protection clause. This completely changed how black lung claims are handled. There are several provisions in KRS 342.316 that are now unconstitutional but are still on the books. Co-Chair Harris said that he would like to suggest the removal of those unconstitutional laws from statute through recommendations of the task force.
There being no further business, the task force was adjourned at 11:35 a.m.