ACA: An act of unknown consequences for workers compensation

Originally published by Derek A. Jones on Milliman, July 10, 2013:

The Patient Protection and Affordable Care Act (ACA), enacted in 2010, introduced significant changes to the U.S. healthcare delivery system. These changes are expected to expand access to insured care while also managing the costs of medical services. Medical costs associated with workers compensation coverage are estimated to be 2% of the aggregate medical expenditure in the United States.¹ There were no significant elements of the ACA directed at workers compensation, so it can reasonably be assumed that the workers compensation market was largely ignored when the ACA was written—but there are numerous potential indirect effects on the workers compensation system that will likely vary by state. As the most significant elements of the ACA, including health insurance mandates and the implementation of health insurance exchanges, become effective in 2014, providers of workers compensation benefits will soon begin to feel the true impact of the healthcare reform. What can they expect?

Expanded health insurance market provides no guarantees

The U.S. Census Bureau estimated that the uninsured population in 2011 was 48.6 million or 15.7% of the U.S. population.² The combination of guaranteed issue and individual mandates that become effective in 2014 with expanded Medicare eligibility is expected to facilitate coverage for an additional 30 million lives.³

One clear intention of the ACA is that greater access to health insurance coverage should lead to a healthier population, which should have two direct effects on the workers compensation market. First, all else being equal, a healthier workforce is expected to lead to a reduction in claim frequency. Second, a healthier workforce could also lead to greater ability to recover from workplace injuries, which will accelerate the employee’s return to work. If this occurs, or if healthier individuals are less inclined to continue on workers compensation with a combination of work-related and other medical conditions, the claim experience of the workers compensation market should improve.

Less clear, but perhaps more significant, is the potential shift of costs between the workers compensation and the health insurance markets. A common challenge for workers compensation providers is the tendency by a portion of the workforce that does not have health insurance to file for or to stay on workers compensation, with some health benefits being paid for medical conditions that may not be work-related. In practice, to the extent many of these claims are treated easily and closed quickly, the expanded availability of healthcare insurance by the general population may shift some of these claims to healthcare. To the extent they are small, there may not be a significant impact on either system. To the extent any of these claims are larger, there may be a significant cost shift from workers compensation to healthcare.

For workers with ailments that require regular treatments over a number of years, there is the issue of convenience in addition to the question of availability of insurance coverage—both workers and medical service providers (e.g., physicians, hospitals) generally prefer health insurance over workers compensation. Workers tend to dislike the lack of control they have in the workers compensation system, which is due to the requirements of dealing with claims handlers and medical claim payment systems and, in some states, having to select physicians from the employer’s medical provider network. Workers also seek to minimize interaction with a carrier’s claim handlers; this is a frequent driver of claimants’ pursuits of workers compensation claim settlements. When a choice between health insurance and workers compensation coverage is available, many workers will opt for health insurance.

For physicians, the workers compensation system typically requires more justification of the treatment, as well as the preparation of reoccurring formal reports and other paperwork. In some cases, they may be required to testify regarding their treatments before receiving reimbursement from the insurance carrier. This administrative burden and low fee reimbursements are why many physicians do not accept workers compensation claimants as patients. Opportunities to direct patients to claim coverage under health insurance instead of workers compensation will be welcomed by the physician community.

While workers find the administrative requirements of workers compensation to be onerous, the increased use of deductibles and copayment requirements in the health insurance market could drive some users back to the workers compensation market. Another factor that could increase the costs of workers compensation is the current shortage of primary care physicians in the United States. A shortage of primary care physicians could delay the employee’s medical evaluation(s) and thus impede carriers’ ability to deny questionable claims as quickly as possible. More importantly, the lack of primary care physicians will prevent timely treatment of workers’ medical conditions. Claims professionals commonly acknowledge that the first 90 days of a claim define the course for the claim while it remains open. Obstacles to timely initiation of a proper course of treatment will slow workers’ ability to recover and to return to work, which could unnecessarily extend the medical cost and wage replacement components of workers compensation claims.

Another way the ACA has facilitated the shift from workers compensation to group health coverage is the creation of the Pre-existing Condition Insurance Plan (PCIP). The PCIP is a program to provide health coverage to people who have been denied coverage because of their health condition or who presently have a preexisting condition.⁴ Before the ACA was enacted, workers compensation was used by many people to obtain at least some healthcare for a preexisting condition that was arguably associated with a work-related injury. In 2014, the ACA will prohibit health insurers from refusing coverage because of preexisting conditions and will maintain the spirit of the PCIP, which will no longer be needed.

PCORI should advance evidence-based medical guidelines

A different element of the ACA that could influence the workers compensation market is the Patient-Centered Outcomes Research Institute (PCORI), which was created to perform comparative effectiveness research. PCORI is expected to identify the most effective medical treatments and preventive medicine.⁵ As care providers and injured workers receive current evidence-based research about medical treatment options, the improved patient care could result in a faster return to work for claimants. This would reduce both the medical cost and the wage replacement components of workers compensation claims.

PCORI was not formed to improve the efficiency of the workers compensation system, so it is possible that its efforts will not be entirely favorable to the workers compensation (or health insurance) market. It could counteract cost containment efforts of the ACA. For example, PCORI research could also conclude that an increase in utilization is appropriate for the well-being of an injured worker. Nonetheless, PCORI should benefit the workers compensation system as the use of evidence-based medical guidelines has increased across the United States, because such guidelines have generally been found to decrease workers compensation medical costs. ⁶ Evidence-based guidelines represent a tool for medical case managers to control physician services, and PCORI should enhance this.

The Massachusetts experience: A leading indicator?

In 2006, Massachusetts introduced reform measures similar to the features of the ACA. These measures include: individual and employer mandates to expand access to health insurance coverage, a subsidized low-cost plan, and expansion of eligibility for Medicaid benefits. The preliminary impact of these reform measures on the state’s workers compensation system was recently analyzed by the RAND Institute.⁷

The RAND study found that the experience of Massachusetts appears to reflect cost shifting from workers compensation to health insurance. Based on a review of hospital billings to workers compensation claims, RAND observed that billed charges and treatment volume per workers compensation claimant have not changed noticeably. The total volume of workers compensation billings, however, fell by 5% to 10%, which indicates that some claimants have opted to file claims with their health insurance providers rather than as workers compensation.

The RAND study noted that Massachusetts reflects low reimbursement rates for medical providers compared to other states. This could increase the incentive to shift costs from workers compensation to the health insurance market. Nonetheless, the initial indications of the impact of the Massachusetts reform provide a reasonable view of the potential influence of the ACA.

Conclusions

The medical costs associated with workers compensation coverage were not a direct target of the ACA, but there will be an impact on the market. This will be more pronounced in 2014 when many components of the ACA take effect. The most immediate impact will likely be a shift of medical expenditures from the workers compensation market to the health insurance market as a portion of the uninsured population will no longer need to use workers compensation to obtain healthcare. While there will be other indirect influences of the ACA on the workers compensation system, more affordable and available health insurance will promote a healthier workforce; this will in turn lead to significant benefits in fewer workplace injuries and faster returns to work for employees.

Contact Chivaroli & Associates Insurance Services for more information on the Affordable Care Act and workers compensation.