The World According to Marsh: Workers’ Comp Industry Insiders Review the Lay of the Land for 2014

The World According to Marsh: Workers’ Comp Industry Insiders Review the Lay of the Land for 2014

Karen C. Yotis, Esq., a Feature Resident Columnist for the LexisNexis Workers’ Compensation eNewsletter, provides insights into workplace issues and the nuts and bolts of the workers’ comp world.


When it comes to gaining insight in order to assess risk, it’s no secret that the legal, business, and insurance professionals often turn to Marsh USA for that particular global perspective which springs from the detailed knowledge of the organization’s collective expertise.  Marsh generously shared some of this valuable knowledge recently in the first of a four-part webcast series hosted by Christopher Flatt, Workers’ Compensation Center of Excellence Leader at Marsh and his colleague, Workers’ Compensation Market Research Leader Mark Walls. Joining these Marsh specialists was Max Koonce, Senior Director of Risk Management at Wal-Mart Stores, Inc., who added a great deal of practical, bottom line-focused input to the discussion.

Workers’ Compensation 2014: Terrorism Insurance and Other Key Legislative Issues,” touched upon a wide range of hot button topics, from recent reform measures taken in key states and the looming expiration of the federal terrorism risk insurance backstop, to the Affordable Care Act and anticipated legislative developments throughout the nation that we should all be prepared to watch in the coming year.


The webinar offered a good review of state legislative reforms containing key initiatives that were intended to reduce costs. 


The Marsh panel spent a good part of the hour talking about California’s SB863, the legislative behemoth created through months of closed door negotiations between labor union and employer representatives who historically came together  to devise and agree upon a comprehensive workers’ comp reform package in that State.  SB863 arrived on the scene in late 2012 with the expectation that it would increase benefits to injured workers and lower costs for California employers. According to Walls, while benefit levels for permanent disability have increased, the anticipated savings components are still a work in progress. Although speedy implementation was promised for all 14 of the key savings provisions included in SB863 at passage in order to quickly realize savings, only 6 have been initiated to date, with some operating under emergency regulations and others just beginning the regulatory process.

Using SB863’s Independent Medical Review (IMR) process to illustrate his point, Walls explained how an initiative designed to increase efficiency and decrease litigation in medical disputes had overwhelmed IMR service providers, and actually added to administrative costs while causing review deadlines to be missed. While readily admitting that the IMR concept is sound and works in other states, Walls blamed the current difficulties on an inherent flaw in the California system and pointed his finger of blame directly at injured workers’ attorneys who inundate the system with unnecessary IMR requests.

Author’s tip: For another viewpoint on what’s wrong with the California UR IMR system, see Robert G. Rassp, Esq.’s prescient article “SB 863 Reforms: Adjusters Should Adjust - The Blowback From UR and IMR”, which can be read on The Rassp Report law blog.

Walls also alluded to implementation delays, litigation, and unanticipated consequences as being the main causes for the increased complexity, higher costs, and continually rising rates in California under SB863.  He also predicted that the industry should have a good picture by the end of 2014 of whether the anticipated savings from SB863 will ever materialize.

Max Koonce didn’t pull any punches about Walmart’s workers’ compensation experience in the Golden State.  He called out California as the most expensive state in the entire nation from a workers’ comp standpoint, and as being worse than any of the other states for a multitude of other reasons. He stated that programs which work in other states don’t work in California, paperwork is unduly burdensome, and claims duration is significantly longer there.  Although Koontz felt strongly that employers should pay for the necessary medical treatment that is well-defined in the law, in his view this is unfortunately not the case in California under SB863.  He agreed with Walls’s points about the reasons for the problems being experienced with the IMR process and voiced his frustration with the specific process for lien resolution that exists only in California.

Koonce did not in reality expect any of the savings promised by SB863, stating:

“Because the California law as it is has so much grey in it, leaves things open for interpretation, and does not address what the workers’ compensation system is set up for, I don’t see it long-term providing the environment that is focused on driving efficiencies, effectiveness, and the right results for the employee or the employer.”

New York

The Marsh panel also talked about the workers’ comp reforms contained in New York’s Business Relief Act signed by the Governor as part of the New York State budget in early 2013, emphasizing the assessment calculation reforms that apply to policies issued after January 1, 2014.

Author’s tip: New York insiders Ronald E. Weiss, Esq. and  Ronald Balter, Esq. explain the origins of these reforms in the New York Workers’ Compensation Handbook, 2014 Edition (LexisNexis) (available April 2014):

“In 2013 Governor Cuomo pressed enactment of a number of reforms to the workers’ compensation system, ostensibly to cut costs for employers and carriers, without decreasing benefits to claimants. To do so the Governor successfully bypassed the usual process for legislative change to the law by including the proposed reforms in the New York State 2013/2014 Budget, which was due to be enacted by April 1, 2013. The reforms, enacted March 29, 2013, are contained in that part of the budget bill referred to as the Business Relief Act.”

See also the “WCA Hails Budget Agreement”, posted on the New York Workers Compensation Alliance Law Blog.

Walls noted that multiple assessments that were previously issued are now combined into one assessment billing, including:

He also noted that self-insured employers will still be subject to §50-5 assessments, which will continue to be based on losses and subject to accrual.

Although Walls expects policyholders in a first dollar, retrospective, and deductible program to see assessment savings (2013 assessments collected by insurers for policyholders were approximately 18.8 percent in 2013 and are expected to be approximately 13.8 percent in 2014), he cautioned that New York assessments can vary greatly from year to year, and that long-range savings remain to be seen.

Koonce’s comments about New York were both critical and hopeful. In his view, workers’ compensation boards, commissions, and courts have enlarged and changed the intent of unclear laws, resulting in Walmart not seeing any of the savings promised by New York’s legislative reforms. But Koonce also mentioned the ongoing effort in New York to seek input from different organizations involved in the workers’ compensation industry to see what they can come up with as far as trying to set the process in a way that actually delivers benefits to the individuals who are truly injured at work, and makes the system more predictable for employers in terms of knowing what it is going to cost to operate in New York.



The Marsh panel also discussed SB1062, the Oklahoma legislation that produced what LexisNexis author and columnist Thomas A. Robinson has described as “the most comprehensive—and talked about—revamping of any state’s workers’ compensation system,” of 2013 [see Workers’ Compensation Emerging Issues Analysis, p. 154 (LexisNexis)].

Although there are a number of far-reaching components to the Oklahoma legislation, the Marsh panel focused on the opt-out provisions contained in the Oklahoma Benefit Act, the second component of the 2013 legislation, which also includes the Administrative Compensation Act (abolishing Oklahoma’s existing judicial management system in favor of an administrative structure under the newly created Workers’ Compensation Commission) and the Arbitration Act (permitting employers to require arbitration as an exclusive means of settling workers’ compensation disputes).

Author’s tip: For a comprehensive discussion of all three core elements of the new law, which was upheld as constitutional by the Oklahoma Supreme Court in December, 2013, and which takes effect February 14, 2014, and covers injuries sustained on or after January 1, 2014, see Workers’ Compensation Emerging Issues Analysis, pp. 154-157 (LexisNexis) [see also “Jury Still Out on Effectiveness of Workers’ Compensation Reforms”, by John Stahl, Esq. (discussion of Oklahoma option at the 22nd Annual National Workers’ Compensation & Disability Conference)].

Although the term “opt-out” in the context of workers’ compensation brings immediate associations with the Lone Star State, Texas and Oklahoma are about as different when it comes to opt-outs as they are when it comes to football. Whereas Texas (and another other opt-out state, New Jersey) does not compel employers to provide workers’ compensation coverage, under the Oklahoma opt-out scenario, coverage remains compulsory.  

“…Under SB 1062, the employer must choose between a relatively ‘traditional’ state-run mechanism for providing benefits and the alternative afforded under the opt-out provisions of the new law. ‘Non-subscribing’ status for the employer, allowed in Texas, is not a feature of the Oklahoma legislation. In order to ‘opt-out’ of Oklahoma’s administrative system, employers must notify the state insurance commissioner and pay an annual fee of $1,500. Employers must also notify employees of the change in coverage. Finally, they must adopt a written ‘benefit plan.’ The written plan must include a statement of benefits and a description of the procedure that must be followed by an injured employee who seeks benefits. The opt-out employer’s plan must provide ‘for payment of the same forms of benefits’—temporary total disability, temporary partial disability, permanent partial disability, vocational rehabilitation, permanent total disability, disfigurement, amputation or permanent total loss of use of a scheduled member, death and medical benefits, and the like—‘and with dollar, percentage, and duration limits’ that are at least equal to or greater than those provided within the state’s workers’ compensation act, as amended [see Senate Bill 1062, § 100].” (Emphasis in original) Id. at page 154.

In discussing various aspects of Oklahoma’s version of the opt-out, Mark Walls emphasized the critical savings components of full employer control of medical care, as well as the significant changes to the underlying workers’ compensation system, as positive signs, while cautioning that employers are waiting to see the effect of these changes before deciding whether to take the opt-out path offered in Oklahoma.

Max Koonce did not share the same caution about the future of the opt-out scenario as the ever-wary Mark Walls, based upon Walmart’s extremely positive opt-out experiences in Texas as well as Wyoming, which has a limited opt out provision. According to Koonce, injured workers are embracing Walmart’s opt-out initiatives in those states because the programs eliminate bureaucracy, decrease the duration of claims, result in better treatment of an employee’s injury, and gets injured employees back to work.  Koonce believes that SB1062 has the potential to transform Oklahoma from one of the five worst states from a workers’ compensation cost perspective to a jurisdiction that is clearly focusing on economic and business interests by creating a better option for employers and their injured workers. Koonce went so far as to tout what he called the “Oklahoma Experiment” as a possible model going forward for other states (and for employers who can afford it).


The Marsh panel also mentioned the Workers’ Compensation Reform Act of 2013, the far-reaching and important legislation enacted in Tennessee, which moves workers’ compensation claims from state chancery and circuit courts to a Workers’ Compensation Court. While this aspect of the Reform Act is a huge sea-change, it is hardly controversial, given that Tennessee had been one of only a few jurisdictions still using its state court system to litigate workers’ compensation claims. Both Walls and Koonce shared the view that the Tennessee legislation would eventually realize its dual intention of increasing efficiency and consistency and decreasing policyholder costs.

Author’s tip: For a more detailed discussion of the Tennessee Reform Act, including the new law’s more controversial amendment of the “injury” and “personal Injury” definitions to require a heightened level of proof of causation, see Workers’ Compensation Emerging Issues Analysis, p. 182 (LexisNexis) (Tennessee commentary by Thomas A. Robinson).


The panelists also talked about federal legislative developments that are affecting the workers’ compensation industry, including the Patient Protection and Affordable Care Act (PPACA), the Strengthening Medicare and Repaying Taxpayers (SMART) Act, which instituted reforms to existing Medicare Secondary Payer (MSP) rules, and the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), the federal terrorism insurance backstop that is scheduled to sunset on December 31, 2014.

Affordable Care Act

The Marsh panel avoided the obvious in its discussion about Obamacare. As Max Koontz adroitly pointed out:

“You can read about every side to the argument in some form or fashion as to whether or not it will have a positive impact, negative impact or neutral impact, [and] I’m not sure what impact it will have.”

Instead, both Koontz and Mark Walls looked at the potential provider shortage for employees with workers’ compensation injuries that could arise as a result of the anticipated increase in coverage on the group health side brought about by Obamacare, as well as the resultant increased utilization of services in a medical universe that has a finite number of available providers. Both panelists emphasized the critical importance for workers’ compensation payers to identify providers who will deliver the best outcome for injured workers. Walls also spoke about the need to shift the future focus of medical networks from fee-for-service discounts to a quality of care and outcomes model as a workable (albeit initially more costly) solution to getting more timely and less inappropriate treatment, lower payer costs, and faster return to work in the constantly shifting medical landscape that is evolving under the ACA. 


The Marsh panel also talked about the SMART Act, signed into law by President Obama on  January 10, 2013, to address Medicare Secondary Payer laws in the context of workers’ compensation and liability lines of coverage. While passage of the law was just the first step in a long process, neither Walls nor Koontz held up much hope for future regulatory changes on problematic items such as conditional payment determinations, safe harbor provisions for potential penalties, and the appeals process.

Author’s Tip: For an excellent discussion of how “MSP issues are collateral damage of more systemic societal problems we face as a nation”, see Jennifer C. Jordan, Esq.’s “Medicare Secondary Payer Law: 2013 in Review” (excerpted from The Complete Guide to Medicare Secondary Payer Compliance, 2014 Edition (LexisNexis)).

Walls also mentioned an anticipated increase in liens from Medicaid during 2014 (on top of the existing Medicare lien conundrum) to add an additional wrinkle to an employer’s risk assessment of potential liability under federal law.  

Author’s note: Jordan explains in an upcoming supplement to The Complete Guide to Medicare Secondary Payer Compliance:

“With the Affordable Care Act increasing the number of working individuals who can now qualify for Medicaid, it is likely that we will start finding more and more dually eligible beneficiaries. It will become increasingly more important that attorneys identify Medicaid exposures just as they do for Medicare. While [House Joint Budget Resolution 59] did not provide Medicaid with similar teeth for enforcement, it is likely just a matter of time. Attorneys would be wise to watch for additional Medicaid reimbursement laws.”

Koontz pointed to the ongoing efforts of the Medicare Advocacy Recovery Coalition (MARC)—Walmart is a member—to promote passage of legislation for matters such as clear language to define the term “total settlement” in a CMS review, an optional payment process that will be assumed to be sufficient for any future medical treatment, and other provisions like timelines and definitive processes intended to decrease uncertainty in an effort to lower employer costs and shorten the length of time for claims resolution.


Although the issue of whether TRIPRA will be reauthorized doesn’t directly impact workers’ comp attorneys, the issue of whether Congress will (a) extend the legislation as is; (b) extend it with modifications; or (c) let the legislation’s terrorism insurance coverage backstop expire with respect to the P&C industry is certainly having a big impact on employer clients who must purchase compulsory workers' compensation coverage from which no form of terrorism risk may be excluded. Because of the Congressional uncertainty surrounding TRIPRA, workers’ compensation carriers and reinsurers—who after September 11, 2001 started focusing on employee concentrations in major cities from a terrorism loss perspective much as they do when assessing exposure in earthquake prone areas—are beginning to reduce their risk by limiting the number of policies they write in certain areas with large employee concentrations or in certain cities with a higher terrorism risk.

Panelist Christopher Flatt stated that he is starting to see other actions taken by insurers, such as attaching endorsements to policies that allow for a change in premium mid-term during the policy year if TRIPRA is changed or not renewed. In addition, he is seeing situations where insurers are setting expiration dates on policies to coincide with the anticipated expiration of TRIPRA. Since employers are required to purchase terrorism insurance as part of their workers’ compensation coverage in a shrinking market without sufficient private carrier options, state funds, assigned risk pools, or qualified self-insurer models in place, Flatt recommended that employers get their renewal process underway early, work with advisors about tactics around key risk exposures, and take the time to obtain analytics and other high quality data that more accurately demonstrates for insurers a company’s risk profile and potential for terrorism loss. 


The Marsh webinar ended with a brief discussion of upcoming legislation in various key states.

California (again)

Walls mentioned the legislation introduced in California to clean up SB863 and intimated that things may not stop there. Anticipating no exception to the California’s historic habit of introducing a new workers’ compensation bill in every legislative session, Walls fully expects proposed legislation in 2014 from the special interest groups that have been lobbying to eliminate the SB863 reforms for going too far and not considering their positions.


Walls also mentioned Illinois, another State with an historic habit of seeing “reform” bills introduced on a fairly regular basis.

Author’s note: Walls previously spoke to this author at length about the 2012 Illinois workers’ compensation reforms enacted with HB1698, and his erudite comments are summarized in an article that is republished in full in Workers’ Compensation Emerging Issues Analysis, pp. 388-398 (LexisNexis).

During the Marsh webinar, he emphasized the possibility of Illinois raising the threshold for causation so that a work injury would have to constitute the primary cause of any injury to qualify for workers’ compensation benefits, and other short-term fixes such as lowering the fee schedule, but was cautious about whether such legislation would gain any traction during 2014.

Author’s tip: See Brad Bleakney’s excellent summary of the Illinois 2012 legislative reforms, available here.

New York (again)

The Marsh panelists also talked about New York as another state where reform legislation is again (still) being discussed. With the state’s 2007 reforms not fully implemented until 2012, and 2013 legislation that focused on assessments, (loud) calls from the business sector for legislation to address the underlying cost drivers in the system continue to be heard.


To supplement previous laws passed in Virginia such as Va. Code § 65.2-105, which establishes a presumption that certain injuries are work related, Walls mentioned additional anticipated legislation that is intended to address Virginia’s status in a recent Workers’ Compensation Research Institute study as having one of the states with the highest medical costs in the nation. Since one reason behind this unfortunate statistic is Virginia’s lack of a medical fee schedule, in 2013 legislation was introduced to implement a fee schedule based on Medicare reimbursement rates around the country. Although the bill did not pass, it remains high on the list for business interests, and will be reintroduced during 2014.


Finally, the Marsh panelists discussed their concerns about Colorado, where draft legislation is circulating that would give injured workers full choice in the selection of medical providers and rehabilitation services if an injured worker is not returned to his or her place of employment. Since most employers and carriers would recognize their ability to select an injured worker’s medical provider as a key core savings component of any workers’ compensation system, Colorado’s activity away from that scenario gave both Walls and Koontz cause for concern. Koontz stated that he would expect the abolition of Colorado’s current provider selection process to have a significant impact on duration, treatment protocols, and, in short, all of the other things that are instrumental in helping an employer get an injured employee recovered and back to work.


The Marsh panelists’ comprehensive review of the existing workers’ compensation landscape in key states around the nation begged a question from a webinar listener about the extent to which employers pay attention to workers’ compensation costs when deciding where to locate business opportunities. Koontz gave a characteristically unadorned answer when he stated:

“I think all employers as a whole look at three things. They are predictable. First, you look at what taxes will be. Second, you look at the employee base. Third, you look at your workers’ compensation costs in that state. These considerations are fairly set and are the things you will have to focus on when you go to that state [to do business].”

Walls summed it up best when he told this author by email:

“Workers’ compensation is constantly evolving, with new challenges adding complexity and cost to an already difficult line of coverage. Because of this, it is imperative that employers constantly monitor their workers’ compensation programs and seek opportunities to improve outcomes. It is also important to be looking at all elements that make up the total costs of risk, including program structure, loss prevention, and claim management. By using a holistic and integrated approach, employers can achieve cost savings and better outcomes for their injured workers.”

Employers, carriers, and the attorneys that represent them would do well to heed this advice as they begin to navigate the 2014 workers’ compensation landscape.

The full webinar “Workers’ Compensation 2014: Terrorism Insurance and Other Key Legislative Issues,” is currently available for your listening pleasure on the Marsh USA website.

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