Journalism in the Public Interest

Insurance Information Institute Challenges Our Workers’ Comp Investigation. We Respond

After John Coffell hurt his back at an Oklahoma tire plant last year, his wages dropped so dramatically that he and his family were evicted from their home. (Brett Deering/AP for ProPublica)

Last Thursday, the Insurance Information Institute sent ProPublica and NPR a letter challenging our investigation into workers’ compensation reform laws and the impact they’ve had on some workers.

The stories reported that since 2003, more than 30 states have cut benefits, created hurdles to getting medical care, or made it more difficult for injured workers to qualify. At the same time, we reported, employers are paying the lowest workers’ comp rates since the 1970s. And in 2013, insurance companies had their most profitable year in over a decade.

Robert P. Hartwig, president of the institute, wrote that the stories were based on “unsubstantiated assertions, incorrect interpretations and subsequent erroneous conclusions.”

He pointed to no specific errors, however, and demanded no corrections.

We’ve posted a summary of the institute’s letter here. This is our response:

1. “The very title of the ProPublica/NPR is at best misleading and at worst erroneous. ‘The Demolition of Workers Comp’ is hyperbole of the highest order. The fact of the matter is that workers’ compensation insurers today provide some $40 billion in benefits annually to hundreds of thousands of injured workers and to the families of those killed on the job — a basic and important fact that is somehow omitted by the authors.”

ProPublica and NPR included the amount of benefits provided by workers’ comp when it noted in the story that fraud accounted for little of the “$60 billion spent on workers’ comp each year.” The higher number comes from the annual report of the National Academy of Social Insurance, a nonpartisan organization that studies programs such as Social Security, unemployment insurance and workers’ comp.

ProPublica titled its story “The Demolition of Workers’ Comp,” to signify how recent reform laws were dismantling some of the fundamental protections workers’ comp historically provided: The guarantee that workers would receive enough of their wages so they wouldn’t fall into poverty, the promise of the medical care they need to return to as normal a life as possible and the expectation that injured workers would have a voice and be treated with dignity.

2. The institute criticizes us for omitting “the indisputable fact that the workplace has become safer.” It credits “the relentless loss control efforts of insurers and employers in partnership with state and federal government” and notes the decline in injury rates over the past two decades and over the past century — “precisely coincident with the dawn of modern workers’ compensation systems.”

ProPublica and NPR do not dispute that the workplace has become safer. But the focus of our story was on how changes in workers’ comp laws have affected people who are injured on the job. Workers’ comp is a vital safety net whose costs give employers an incentive to keep their workplaces safe. This is precisely why we felt it was critical to investigate the rollback of benefits by many states.

Over the century that workers’ comp has been in effect, workplace injuries have gone both up and down. The decline in fatalities and injuries has multiple causes, including the creation of the Occupational Safety and Health Administration (OSHA), improvements in auto safety and health research, the growth in automation and a changing economy which has reduced jobs in dangerous manufacturing and mining industries and expanded them in the safer service and office sectors.

3. The institute says the conclusion that 33 states have cut benefits is “far too sweeping of a statement.” It says workers’ comp faces some of the same challenges as the overall health care system and “is in constant need of monitoring and fine tuning.”

The story noted that 33 states have cut benefits for injured workers, created hurdles to getting the medical care their doctors recommend, and changed legal standards to make it harder for injured workers to qualify for workers’ comp. State after state enacted sweeping cuts that dramatically changed benefits for those with the gravest injuries, changes that went well beyond “fine tuning.” A detailed accounting of reform laws, which no one had done before, can be seen in this interactive graphic. A recent report by OSHA echoed ProPublica and NPR’s findings.

4. The institute implies that we characterized two changes as “cuts”: formularies that specify which prescription drugs are covered and laws that reduce benefits for workers who are intoxicated at the time of their injuries.

In detailing which states cut benefits, we did not count such laws as reductions. Several states passed these provisions during the time period we studied, but they were not considered rollbacks in either the story or the interactive graphic.

5. The institute challenges the notion that many reforms were pushed by businesses and insurance companies on the false premise that costs are out of control. “ProPublica and NPR would have benefited from looking at actual data rather than making unsubstantiated claims that in turn lead to false conclusions,” it says. “In fact, by any reasonable standard costs were out of control.” The institute cites a study by the National Council on Compensation Insurance that it says found that workers’ comp medical costs rose at nearly twice the rate of general health care costs on average between 1991 and 2009.

“The authors reach several other spurious conclusions,” the institute says. “It is alleged that because workers’ comp costs per $100 of workers’ wages fell over the years between 1991 and 2014 while health insurance and pension/retirement costs rose sharply, that this is prima facie evidence of a cheapening of workers’ comp benefits. Nothing could be further from the truth — or the facts. The authors miss a fundamental point — the workplace has become demonstrably and materially safer over the past quarter century.”

The finding that workers’ comp rates have fallen was substantiated by multiple data sources. ProPublica and NPR relied on three separate studies to examine the cost that employers pay for workers’ comp insurance premiums. All three are widely respected and used by the workers’ comp industry, and all three come to the same conclusion: Workers’ comp rates are the lowest they’ve been in decades. The sources, which were included in the graphic, are the Oregon Workers’ Compensation Division, the U.S. Bureau of Labor Statistics and the National Academy of Social Insurance.

The story noted several factors that prompted reforms, including rising medical costs. But the workers’ comp data that the Insurance Information Institute cites deals only with the most severe injuries that “cause an injured employee to miss work.” This is very different from the data it’s compared to — the general health care costs for all manner of ailments, including sore throats and minor sprains.

Another study by the Workers Compensation Research Institute recently compared medical inflation in professional services — such as surgery, radiology exams and doctor visits — from 2002 to 2013, the period ProPublica and NPR reviewed. WCRI found that most states it studied have seen far lower medical inflation in these services than health care as a whole (Figure 1, page 7).

While workplace injuries have indeed fallen, the frequency of claims is only one factor that goes into workers’ comp premiums. Other important components include health care costs, the length of injury, benefit payments, overhead expenses and the rise and fall of insurance industry investments. Our point wasn’t that rates shouldn’t be going down, but that “despite the drumbeat of complaints” in state legislatures, the cost of workers’ comp is at a historic low and is a relatively minor part of employee compensation.

6. The institute says, “ProPublica and NPR also make some unsourced and inaccurate statements about profitability in the insurance industry.” The story cited an 18 percent return in 2013. The institute quoted a figure from the National Association of Insurance Commissioners to say workers’ comp “return on net worth was just 7.2 percent.”

The data on profitability comes from the National Council on Compensation Insurance’s financial update from November 2014 and is the most widely used figure in reporting the financial results of workers’ comp insurance companies. NCCI is the leading ratings bureau for the workers’ comp industry.

The figure, known as the operating gain ratio, is also used by the insurance ratings firm A.M. Best, whose data shows a similar 17-percent return for 2013. John Burton, an economist who has tracked workers’ comp profits over 40 years, notes, “The overall operating ratio, which is the most comprehensive measure of underwriting results because it considers investment income, indicates that nationally workers’ compensation insurance was at near-record levels of profitability in 2013.”

The Insurance Information Institute does not break out workers’ comp results in its publications. But Hartwig similarly reported in the institute’s annual financial results that “profitability in the property/casualty insurance industry” — which includes workers’ comp — “surged to its highest level in the post-crisis era in 2013.” Workers’ comp, he added, was the “fastest-growing” major line of insurance within the property/casualty sector in 2013.

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