When the College of Cardinals elects a new pope, a puff of white smoke appears above the roofs of the Vatican. On March 13, when Governor Eliot Spitzer signed the workers compensation reform legislation, Albanys version of a white smoke signal appeared " followed, in the ensuing weeks, by a sort of grey haze compounded of the difficulty of interpreting the meaning and significance of some of the details, the many unknowns still to be resolved through regulatory measures, and the simple fact that only time will tell.

The great 20th century architect Mies van der Rohe insisted that God is in the details. Then again, his work was characterized by great simplicity and, above all, perfect precision of detail. Nearly everyone commenting on the workers compensation reform bill, on the other hand, says that the devil is in the details. At the moment, those details are still less than precise, even to the experts. So its understandable if they themselves have more questions than answers. But theyre asking very good questions.

Benefits

Capping PPDs has long been a bone of contention between labor, on one hand, and business and insurance carriers on the other. But a number of safety nets, including the provision of lifetime medical care, make that measure more acceptable. As outlined by Art Wilcox, workers compensation spokesperson for the NYS AFL-CIO, these include starting the durational time clock not at the date of injury, but when the injured worker is classified as PPD; any payments made to the worker prior to that date are not factored into the total number of weeks. At present, Wilcox said, the average time it takes for classification is four years, though many expect this will be one of several targets of streamlining.

Delays and roadblocks, long a feature of the states workers compensation system, are explicitly addressed in Spitzers March 13 letter to the departments of labor and insurance and the Workers Compensation Board. Specifically, the letter calls for a set of draft streamlined workers compensation regulations, with the objective of creating a system in which the claimants case will be adjudicated within 90 days of a dispute. If 90 days may seem long to an injured worker, Wilcox is a realist: I think thats probably the best we can expect, he said. Youd like to have it done instantly, butthe carrier has a right to have people examinedto challenge witnesses, and so on. The idea is that this will make those things happen much quicker.

Back to Work

Though critics still tend to claim that injured workers would rather collect disability payments than work, there is an abundance of evidence to the contrary. In a January 2007 white paper, the Insurance Information Institute (I.I.I.) notes that [s]tudies have shown that most people want to return to productive employment as soon as possible. Moreover, the sooner an injured worker receives medical treatment, the faster he or she recuperates and returns to work and the less likely that worker is to litigate.

This makes the new laws emphasis on rehabilitation and, when necessary, retraining both a benefit to injured workers and a boon to the economy in general, since, as Elliott Shaw, director of government affairs for the New York State Business Council pointed out, To the extent that somebody gets disconnected from the workplace, it becomes increasingly less likely over time that they will actually return to work.

But he also noted that a great deal of work needs to be done to develop effective return-to-work programs. In Massachusetts, he explained, when youre out on an injury, youre assigned to an occupational rehabilitation counselor of sorts, whose office is part of the states workers compensation board. The counselor works with you to try to get you back to work, Shaw said, adding that we have nothing in New York.

While it is not yet clear how, or by whom, such programs would be administered, Shaw noted that the larger the employer, the more likely that it has its own program. He suggested that New York will look both to other states and to very progressive employers all across [New York State] for examples of successful programs that can be adopted or adapted. And there are incentives for employers: discounts for providing return-to-work, alcohol and drug rehabilitation, and safety programs.

At the same time, the legislation calls for new compulsory work safety and loss prevention programs. Youre talking about something enormous, said Warren Heck, chairman and CEO of Greater New York Mutual Insurance. This is for employers who have experience rating debits that go beyond 120 percent. He acknowledges the complexity of coming up with the rules and regulations necessary to implement the measure: Its a lot, he said. If it can be done, its terrific.

Guidelines and Practices

Recent decades have introduced people to such concepts as fuzzy logic, but New York States workers compensation legislation and regulations have led the pack in overall fuzziness with respect to rules and principles. The new law puts in place specifics that seem to please everyone.

Where the previous legislation distinguished only four levels of disability for PPDs, there are now 12 categories, which, together with the caps, are a big improvement, Heck said. Legal experts, he noted, have said that any guideline needs to be sufficiently specific to avoid constant litigation about the different percentages. The new law is descriptive enough, he believes, to make it clear what it means to be disabled by a certain percent.

In addition, carriers may now establish networks of providers, including both physicians and radiology practices, which are expected to deliver cost savings. If you negotiate on a large scale with any medical provider, based on volume, you would come out ahead financially based on cost-per-transaction, said Ellen D. Kiehl, PIANYs assistant executive director for government and industry affairs. Moreover, she added, this would enable insurers to eliminate clinics and laboratories that engage in fraudulent practices.

Wilcox pointed to the success of such measures. Some of our affiliates, specifically the UAW, have saved a lot of money on workers compensation by utilizing imaging and radiology networks, he said, noting that they have reduced costs by as much as 50 percent, as compared with whats in the fee schedule right now for the same tests. Much the same provision has been made for pharmaceuticals, requiring the substitution of generics where available and permitting mail-order purchase of medications.

Instituting guidelines for best medical practices, too, is expected to greatly improve the system. We have very outdated, outmoded medical guidelines in New York, dating back to the mid-90s, Shaw said. There is, he added a complete absence in New York around best practices as it relates to the medical treatment you provide to an injured worker.

Previously, he explained, what you get into is a dueling-doctors scenario. To the extent that you can try to minimize the variations between two doctors seeing the same patient with the same injury, there will be less litigation.

If networks and best practices might seem to constrain the injured workers options, those measures are also linked to a change in authorization requirements, something Wilcox said labor is really happy about. Under the previous law, he explained, any medical procedure costing more than $500 required prior authorization from the carrier. What happened often, he said, [is that] you couldnt get the authorization without going to a hearing. So people would wait six months to have the MRI to get the arthroscopic knee surgery that ball players come back from in six weeks.

At the same time the legislation raises the authorization threshold to $1,000, it also provides that no prior authorization is needed if the doctor is following best medical practices. What the entire group tried to do here, Wilcox said, referring to the negotiating team, is to do things that would maybe spend a bit more money on medical costs, but at the same time reduce the lost wage portion.

Promises and Pitfalls

If the what is relatively clear, the how still leaves much to be interpreted, decided, and implemented. As Michael Moran, director of public affairs, Northeast region, for AIA commented, [T]he way in which this bill was done means that there are a lot of both challenges and opportunities going forward as the regulatory work, and even some more legislation, is going to have to come down the road. The cap on PPDs, for example, only works if you have good, objective guidelines to determine the degree of disability, he pointed out.

Even once the guidelines are set, people will inevitably test them, said David Dickson, PIANY president. Despite the provisions intended to minimize, if not eliminate, frivolous litigation, the opportunity still remains for potentially legitimate challenges to be debated in the courts.

Some experts have pointed out, for example, that under the previous law, once a claimant was classified, only a few issues could bring the claim back to litigation. However, under the new law, claimants who are classified at 80 percent disabled or higher have the option of seeking reclassification to permanent total disability. This gives rise to two opportunities for litigation: when the claimant who has been classified at 80 percent or higher applies for reclassification, which can be done within a year of the expiration of the capped benefits; and at the point of classification, when claimants classified just below 80 percent may well initiate a challenge, seeking a classification at or above 80 percent so as to be eligible for the later reclassification.

It is anticipated that there will be some decline in litigation, at least in part because hearings will no longer be a feature of every claim. On the other hand, the opportunity for reclassification will likely increase the amount of litigation beginning in 2009 or 2010, when claims with accident dates after July 1, 2007 begin to be eligible. Unless there are interim changes in the law, there is no reason to believe that level of litigation would diminish at any point beyond 2010.

Quite apart from the potential for legal disputes, the new legislations heavy reliance on regulatory provisions, not yet established, makes for questions and concerns. If, for example, an injured worker, classified at 80 percent disabled, has accepted a lump-sum offer " a Section 32 settlement " from the carrier and is later reclassified as permanently totally disabled, he or she would then be entitled to lifetime benefits, well beyond the durational cap on which the settlement was predicated. Who pays? And from what funds?

Or take the example of a worker who is partially disabled but who becomes temporarily totally disabled for a period of time following surgery. Is that period of total disability counted as part of the PPD duration?

The closing of the Second Injury Fund similarly raises questions. Its elimination is not the significant issue, though Dickson said some unidentified groups were anxious to keep the fund in place. The challenge is how to manage the funds dismantling and when.

Michael Barrett, IIABNY legislative representative, believes that one of the toughest aspects of implementing the new law will, in fact, be the details surrounding the elimination of the fund. Some of the process is spelled out in the legislation, but, as Barrett put in, there remain the nuts and bolts of making it work. It is worth noting that, at least according to hearsay, by the end of 2006 the Second Injury Funds total obligations were in the neighborhood of $20 billion. The legislation provides for the issuing of bonds to pay for waiver agreements and other liabilities and expenses of the fund.

Follow the Money

It is understandable that the insurance industry, pleased though its members are with many of the provisions in the new legislation, is taking a wait-and-see attitude toward the outcomes.

Its a little hard to react, Heck said, because youve got to put a value on every change. And Im not sure that we really know what the values are.

To put it another way, The increased costs for the higher benefits and the indexing of benefits going forward are very clear, Moran said. The savings " which there is clearly a potential to have " are dependent on the work still to be done.

That there will be savings is not in dispute, and the law makes it abundantly clear that savings realized by the carriers are to be passed along to employers. How much carriers can save, balanced against the increased costs, no one on the insurance company side is prepared to estimate. The PPD cap will save a lot of dollars, Heck said, but there is also a very vigorous increase in the maximum benefit. Eliminating the Second Injury Fund, he continued, is a very big deal, but youre also expecting an awful lot from reducing fraud and so on, and youre also going to reduce the premiums by 10 to 15 percent immediately.

Moran, among others, pointed out that while the costs are mandated, the savings are thus far theoretical. If objective guidelines are in place for PPDs, he said, the results will be spectacular. And if there is absolute clarity of understanding among workers, employers, carriers, and everyone else involved, the system should work very smoothly and efficiently. On the other hand, he said, If every case is being revisited and litigated, thats going to add to the costs.

Chris Winans, corporate spokesman for AIG, said, Were sure there will be rate reductions in the next few years. But [workers compensation insurance] is the type [of business] where it takes several years to fully realize the costs, long after weve charged for them. Winans takes a straightforward, pragmatic approach to the issue of workers compensation reform. Our job, he said, referring to the industry, is to deliver the benefits of reform to injured workers at the lowest possible cost to the employer, while at the same time fulfilling our shareholders reasonable profit expectations.

The Elephant in the Parlor

One other party absent from the table was the N.Y. Compensation Insurance Rating Board (CIRB), though it played a key role in the negotiations and, ultimately, in its own fate. As the Department of Insurance website describes it, The NYCIRB serves as the private rate service organization for workers compensation in New York State. By statute, all workers compensation insurers must report statistics to a licensed statistical agent. In turn, NYCIRB compiles and evaluates the data and proposes rate changes.

That was before March 13, at which time the new legislation ended New York States exclusive reliance on the [board] and removed from CIRB certain statutory obligations and powers, effective as of February 1, 2008. Another section of the law prohibits any industry rating organization from collecting data or filing rates for workers compensation, effective January 1, 2008.

What killed CIRB? Suicide, evidently, according to several people who were privy to the discussions, as well as a March 12 article in WorkCompCentral. New York Governor Eliot Spitzer gave the ax to the states insurer-run ratings board, the article reads, after the boards actuaries changed numbers during the reform negotiations and failed to provide reliable data that the governor could use to project savings. The article notes further " and others have confirmed " that Spitzers office had to scrap a set of charts and graphs used to project the impact of proposed changes after NYCIRB changed the presumptions behind the data supplied to negotiators.

By way of example, one participant told Insurance Advocate that after negotiators had factored into their agreement the anticipated savings from reform measures relating to prescription medications, NYCIRB said the savings from those measures would be half what they originally said. That meant that everything we had put together was wrong. NYCIRB said that it changed projections during the course of the negotiations only because it had received updated information, but the damage was done. Indeed, some say this instance was only the last straw. Insurance Advocates source commented that the boards data have never been trusted by all the parties, based on their past pattern of providing numbers and then changing them.

Even those generally supportive of NYCIRB may have had their faith shaken by the boards March 16 bulletin, which states that [t]he quantifiable rate level effects of this legislation are currently being determined and will be incorporated into the rating boards October 1, 2007 general rate revision. Perhaps the board and the governors office are working off different dictionaries and calendars. Spitzers March 13 letter makes it clear that savings " not rate level effects " should be reflected in the rate submission expected this year and that the [Insurance] Department should ensure that rates realistically reflect the anticipated financial impact during the effective rate year of the reforms to be implemented. Since, as the letter notes, the 2007 submission from CIRB is due on May 15, 2007whatever savings can be captured through rate adjustments for the current year will have to be achieved by July 15, 2007.

Still, the sunset of CIRB is a cause of major concern among carriers. Of all the elements of the bill, Winans said, thats the one that makes us most nervous. He and others pointed out that rate-making is only one component of the boards responsibilities.

What I think people fail to grasp, Moran said, is that perhaps as important as " or even more important than " doing the rate filing is doing the data collection to give each individual employer an experience modification for a specific job title. No one carrier, he pointed out, has a large enough market share to do that analysis accurately using only its own data.

Absent that broad basis, each insurer has only its own data to work with, Winans said, which opens up the possibility that rates need to be higher to cover the unknowns.

The insurance industry overall uses employer experience ratings as a carrot-and-stick proposition. Employers with better than average experience are rewarded with merit rating plans, saving money on their premiums. The potential for a discount further serves as an incentive for employers to maintain a safe workplace. And those with a debit rating are subject to higher costs and mandatory safety programs.

None of this necessarily suggests that NYCIRB per se is indispensable. Well over half the states use the National Council on Compensation Insurance (NCCI), which describes itself as the oldest and largest provider of workers compensation insurance and employee injury data and statistics in the nation. New Jersey, which some think may serve as a model for New York, uses the New Jersey Compensation Rating and Inspection Bureau (NJCRIB), which was created and established by statute, like NYCIRB, but is under the direct supervision of that states commissioner of insurance.

The anxiety among the carriers arises from the complexity and extent of NYCIRBs data-gathering and analyzing functions. Its complicated, time-consuming, and expensive, and you need the staff, said Heck, who has served on the boards governing and rates committees. Then again, he added wryly, if CIRB is done away with, all those people would be available.

Faster Than a Speeding Bullet

It wont take long for many of the questions to be answered: Acting Superintendent Eric Dinallo has only three weeks left to deliver reports on data collection, streamlining the docket, and developing medical guidelines; by September 1, he must issue a report on NYCIRB. Fortunately, the budget has some $1 million to support those and related efforts.

Fortunately, too, he and the governor have other support. Dickson described the new legislation as a roadmap, as comprehensive as you could imagine.

Kiehl said the bill gets an A+. It was a huge effort. And she noted approvingly that gathering business and labor together [with the legislators] and sitting them down with the new administration and coming to an agreement " that was very impressive.

And Barrett said, simply, I think its awesome that weve got a bill.

How does the business community feel? Shaw said well have to wait until October: [E]mployers are going to want to see their bill.

Until then, Heck emphasized the legislations win-win potential, saying that everyone will benefit if all the details can be worked out. Much of that burden falls on Dinallo, and Heck said, Were all rooting for him.