How Can you Identify States with a Healthy Workers Compensation System?

One of the things I enjoy most about my job is learning all the little nuances of one state vs. another; and after 25 years in the industry, I have found one dynamic of individual states to be a great predictor as to the overall health of the workers compensation (WC) system within that jurisdiction.

You might think after watching some of the television commercials that I’m only interested in finding ways to deny claims; and as much as that makes for good theater, the truth is I have seen statistics that as much as 95% of all Loss of Time claims are managed without the need for litigation. The system looks to employers and their carriers to be administrators of the process with limited litigation – that was one of the founding principles for workers compensation in its inception in 1911.

Even so, there is competition within and among states in how they manage their WC systems; and, each state’s system has largely been modified to meet the individual needs for the largest industries and overall culture within their borders. For example, states with high agricultural production have specific needs that are different than states with a large financial sector, manufacturing and/or hospitality sector. Each jurisdiction over time develops a flavor that is unique to their specific needs.

From time to time states have small incremental changes which can start out as small ripples in the pond but if unmanaged can become a tsunami wave against the overall health of the system. I don’t want to make this a political debate on who’s right or wrong as in the end it really doesn’t matter except for one thing: every jurisdiction needs to keep whatever path they are on a consistent path that is predictable over the long haul.

Jurisdictions that make wide swings one way or another find it very difficult to manage staying on a stable path. As a carrier, our profit margins in WC are very thin and predictability is critical to having any kind of success in the market. Competition within the private WC market keeps prices lower for the employer and is an important component to the overall health of the system. With a highly competitive market, it is very important for carriers to set an appropriate rate for their policyholders and also have enough to pay for claims which can drag on for decades. As a claims person probably my most important and challenging job is to determine the reserves necessary to meet our future exposure well beyond year one.

Consistency and predictability keep the whole thing going and this commentary is not going to provide you a specific solution to tsunami waves if you’re already in one. However, keeping changes to your system balanced to meet the individual needs and flavor specific to your jurisdiction will go a long way to avoiding them. Find ways to collaborate between all parties in the system and look for common ground that is consistent with the flavor of your jurisdiction. I can’t tell you what flavor to take, as one jurisdiction is going to be butterscotch and another cookie dough based on individual needs and local culture. The best advice is to let the players with knowledge of the system and your local economic needs come together on panels to discuss current challenges. Many states have Advisory Councils which do this and I have found these systems of developing new law and administrative changes to be far more favorable over those which come directly from the legislative branch of government.

This is an interesting time where many systems are looking at areas for improvement. Best of luck in whatever jurisdiction you are in as the decisions you make today will have long lasting effects going well into the future.

-Mike Zajicek

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