by Douglas J. Holmes, President UWC—Strategic Services on Unemployment & Workers’ Compensation June 4, 2012

1. Washington DC’s View of Workers’ Compensation by Douglas J. Holmes, President UWC—Strategic Services on Unemployment & Workers’ Compensation June 4, 2012

2. About UWC Established 1933 “The Voice of Business on Unemployment & Workers’ Compensation” Only association exclusively devoted to advocacy for business on national workers’ compensation and unemployment insurance issues • Advocacy • Support for state and national business organizations • National professional society • Employers, insurers, service providers, law • firms, state administrative agencies, and associations • Research/education arm is the National Foundation for • Unemployment Compensation & Workers’ Compensation

3. Federal Impacts on WC and Self Insurers • HR 5284 MSP Workers’ Compensation Settlement Agreements Act of 2012 – Focus on reform of WC Settlement Agreements and Medicare Set Aside. • HR 1063/S 1718 Strengthening Medicare and Repaying Taxpayers Act (SMART) – Focus on Section 111 Reporting, MSP issues for Liability, No Fault and Conditional Payments. • Government Accountability Office (GAO) Study on Medicare Secondary Payer (MSP). • HR 623 Commission on State Workers’ Compensation Laws Act.

4. Federal Impacts on WC and Self Insurers • Federal Standards Imposed on WC. • WC/SSDI relationship under study -WC/SSDI “reverse” offset at risk. • Impact of Patient Protection and Affordable Care Act (PPACA) on Health Information Reporting. • S 1789 (Lieberman-Collins) Title III of bill amending Federal Employees Compensation Act (FECA). • S 669 Isakson (R-GA) Longshore Act Reform. • Prospects for 2012 and 2013.

5. MSP WC Settlement Agreements Act of 2012 • HR 5284 (Reichert R-WA and Thompson D-CA). • Statutory Exclusions from MSP for certain settlements. • Total settlement amounts of $25,000 or less. • Not eligible for Medicare and Unlikely to become eligible within 30 months. • No future medical. • No limit on future medical. • Definition of “total settlement amount” matches CMS definition. Secretary of HHS could increase above $25,000.

6. MSP WC Settlement Agreements Act of 2012 • “Total Settlement Amount” for threshold purposes includes monetary wage replacement benefits, attorney fees, all future medical expenses, repayment of Medicare conditional payments, payout totals for annuities to fund expenses and any previously settled portion of the WC claim. • Included to avoid “scoring” issue from Congressional Budget Office (CBO) and create bright line exemption from MSP. • Define “qualified set-aside” and procedures for submission of set-asides for review.

7. MSP WC Settlement Agreements Act of 2012 • Conditional payment requirements to be determined within 90 days of request • Conditional payment recovery by CMS limited to items and services payable under applicable WC law • Future medical not to exceed amounts under workers compensation fee schedules or law • CMS must approve or disapprove an MSA submission within 60 days of submission • If disapproved, submitter may request reconsideration within 60 days • Further appeal to ALJ and Federal Court

8. MSP WC Settlement Agreements Act of 2012 • Optional direct payment of Medicare Set-aside amount to CMS. • Optional “Safe Harbor” on agreement of the parties to pay 15% of total settlement amount directly to CMS and discharge Medicare’s interest for total settlements of $250,000 or less. • “Total Settlement Amount” for the safe harbor includes items as set forth in the definition for the threshold excluding conditional payment recovery amounts and previously settled portions of the claim; and including only the cost (but not the payout amount) of any annuities.

9. MSP WC Settlement Agreements Act of 2012 • The Safe Harbor percentage will be reviewed over the first three years in effect by the CMS Actuary. • If the Safe Harbor causes a significant negative financial impact on Medicare the Secretary of HHS shall adopt rules to reduce the impact and modify the percentage. • Actuarial review designed to address cost issues and enable streamlining of process while generating additional up front revenue for Medicare and address “scoring” issues with CBO.

10. Strengthening Medicare and Repaying Taxpayers Act (SMART) of 2012 • Introduced by Reps. Tim Murphy (R-PA) and Ron Kind (D-WI). Companion bill S 1718 (Reps. Wyden (D-OR) and Portman (R-OH). • Requires CMS to determine conditional payment amounts within 65 days after request with a statement of the reimbursement amount. • If no statement provided by CMS, parties may give notice to CMS to respond within 30 days; if no response, unless exceptional circumstances, no liability to reimburse CMS.

11. Strengthening Medicare and Repaying Taxpayers Act (SMART) of 2012 • Thresholds for Section 111 reporting would be set each year after review by the CMS chief actuary at amounts based on the expected average amount of conditional payment collections in comparison to the cost of collection. • Modifies the current $1,000 per day penalty for failure to report to include good faith waivers. • Statute of limitations- United States may not bring an action with respect to conditional payment reimbursement later than three years after the date of the receipt of notice of settlement, judgment, award, or other payment.

12. Strengthening Medicare and Repaying Taxpayers Act (SMART) of 2012 • A civil money penalty may not be imposed with respect to the failure to submit required information unless notice to impose the penalty is provided not later than three years after required submission. • Issues in HR 1063 reviewed in hearing in House Energy and Commerce Subcommittee. • Co-sponsors have grown since 2011. • Complimentary to HR 5284.

13. Government Accountability Office (GAO) Study of MSP Issues • Requested by Rep. Stark (D-CA) with support from Rep. Tanner (D-TN-retired) in 2010. • Addressed many issues in HR 5284 and HR 1063. • The overall presentation and organization of process guidance on the CMS website does not ensure that pertinent information can be identified by external stakeholders. • Because CMS regularly updates its policies and processes by issuing memos or “alerts” it is difficult to determine what the current policy is or what may have changed in the process.

14. Government Accountability Office (GAO) Study of MSP Issues • There is no process or policy manual describing the WCMSA policy. • The WCMSA-related memorandums are accessible on the CMS website, but they are poorly organized. • CMS has challenges with contractor performance related to timeliness of MSP recovery and MSA reviews. • CMS has challenges related to timing of demand amounts, cost effectiveness, recovery efforts, and amounts demanded from liability settlements.

15. Government Accountability Office (GAO) Study of MSP Issues • CMS has challenges in guidance and communication related to the MSP process, Medicare set-aside arrangements, and beneficiary rights and responsibilities. • Many areas are in need of improvement. • CMS has indicated interest in releasing a notice to adopt regulations to address many issues raised in the GAO study. • Self Insurers should be prepared to respond to proposed regulations and to suggest best practices while also pursuing legislative change.

16. Federal Standards for State Workers’ Compensation • HR 623 Introduced by Rep. Baca (D-CA) to establish a national commission to review workers’ compensation. Re-intro of HR 635 from 111th Congress. • Suggested reforms for study include coverage, adequacy of benefits, determination of impairment and disability, alternatives to reduce or eliminate bad faith delays, discouraging misclassification of workers as independent contractors and/or leased employee to avoid paying WC benefits. • The list is similar to 1972 National Commission list with goal to move recommendations to national standards to be met in all states. • Many reforms not on the list for study, including evidence based medicine, utilization review, managed care, drug abuse, impact of increasing costs on business operations and economic development. • Amount of permanent and temporary disability benefits and criteria for maximums • Adequate, prompt and equitable system of comp. and medical care • Alternatives to reduce or eliminate bad faith delays, discouraging misclassification of workers as independent contractors and/or leased employees to avoid paying WC benefits • Amount and duration of medical benefits, adequacy of medical care and free choice of physician • Rehabilitation

17. Federal Standards for State Workers’ Compensation • Standards to determine assurance of benefits caused by aggravation or acceleration of pre-existing injuries or disease. • Time limits on filing claims; waiting periods; compulsory or elective coverage; administration; ensuring prompt hearings and due process evidentiary rights in the resolution of claims. • Relationship between WC, old age, disability, and survivors insurance and other insurance.

18. Federal Standards • Many reforms not on the list for study, including evidence based medicine, utilization review, managed care, drug abuse, impact of increasing costs on business operations and economic development. • Rep. Woolsey held hearing in November, 2010 in the House Education and Labor Worker Protections subcommittee to address HR 623 issues as well as the AMA Guides 6th edition and the relationship between workers’ compensation and SSDI.

19. Development of Federal/State Issues • Greg Krohm (IAIABC) and Doug Holmes (UWC) submitted statements in rebuttal to statements from John Burton suggesting that state WC changes caused increased costs for SSDI. • States already regularly review the adequacy of WC awards and payments, the cost of the system to employers, and a wide range of issues. • Reps. George Miller (D-CA) and Lynn Woolsey (D- CA) requested a GAO report to review and quantify the impact on SSDI of changes in state WC as well as the AMA Guide 6th edition. The National Institute for Occupation Safety and Health (NIOSH) was also tasked with a follow-up report.

20. Social Security Disability Insurance Under Scrutiny • House Ways and Means Social Security Subcommittee hearings in 2012 on reasons for exploding caseloads and costs in SSDI. • Causes identified included: changes in SSDI to compensate for mental illness, fraud on the part of certain hearing officers, abuse in the filling of cases by private practice attorneys, increasing age of the workforce, increasing percentage of women in the workforce long enough to qualify and develop disabilities, and lack of effective return-to-work efforts. • No mention in hearings about workers’ compensation as a factor.

21. Social Security Disability Insurance Under Scrutiny • SSA continues to seek workers compensation information from state agencies to cross-match and more effectively determine SSDI/WC offset. • John Burton has proposed that reverse offsets in place in 15 states no longer be recognized by SSA in determining the SSDI/WC offset amount. • Congressional staff continues to reference 2001 GAO report in raising the point of whether annuities in structured settlements should be accepted in determining the SSDI/WC offset. • Informal discussion of new employer reporting for WC/SSDI cross-match.

22. Development of Federal/State Issues • The push for federal standards is in part a response to changes in the political landscape at the state level making such “reforms” more difficult. • At the same time that there is a push at the federal level to address perceived shortcomings in the state WC system, there is also a budget concern at the federal level looking for ways to shift costs away from the federal budget. • The policy direction from Reps. Miller and Woolsey appears to call for greater federal control, entitlement expansion, and cost shifting to states and employers.

23. Patient Protection and Affordable Care Act • PPACA requires that HHS solicit comments on whether there could be greater uniformity in financial and administrative activities and items. • Should federal standards be applied to workers’ compensation medical information? • Consistent with requirements of the Act, a hearing was held to ask the questions • Should health insurance information under workers’ compensation be subject to the Health Insurance Portability and Accountability Act (HIPAA) ? • Would information restrictions have an impact?

24. Patient Protection and Affordable Care Act • UWC filed comments and the insurance industry filed comments that • 1) workers’ compensation medical information should not be subject to HIPAA; and • 2) HHS should learn from its experience with Section 111 reporting for Medicare and the difficulty of “requiring” ICD-9 and ICD-10 codes or other reporting standards that may not fit with workers’ compensation. • HHS determinations with respect to health information reporting and the application of HIPAA are pending.

25. Longshore Act Reform • Interest in Longshore Act Reform continues with introduction of S 669 by Sen. Isakson (R-GA). • Reforms would include many addressed in state workers’ compensation reforms (e.g. choice of physicians, evidence based medicine, compensation rates, utilization reviews, etc.). • S 669 would eliminate dual jurisdiction issues as a matter of federal law instead of relying on state by state law changes (Virginia recently addressed). • Recent legislation passed by the Senate to reform the Federal Employees’ Compensation Act (FECA) indicates what to expect in Congress addressing comprehensive Longshore Act reform.

26. Longshore Act Reform • Although S 1789 had support from the Administration and bi-partisan support, particularly from Senators Collins and Carper, the Senate passed version emerged as a watered down compromise. • The Senate passed version of S 1789 has been sent to the House. • A window for amendment of the Longshore Act may be available in the next Congress and S 669 could start as the vehicle.

27. Observations for Self Insured Employers • The risk of greater federal regulation on workers’ compensation is growing. • Medicare and Social Security trust funds are going broke- easier for Congress to shift costs to workers’ compensation than to cut benefits or raise taxes. • Change in the composition of state legislatures since 2010 has increased pressure for federal standards to overcome state restrictions. • The costs associated with compliance with new federal regulations that may be inconsistent with state laws will increase. • The results of the Supreme Court decision in determining the constitutionality of the PPACA and the 2012 elections will determine how federal law and standards will be administered and the impact on states and employers.

28. Join US UWC -- Strategic Services on Unemployment & Workers’ Compensation “The Voice of Business on Unemployment & Workers’ Compensation” 910 17th Street, NW, Suite 315 Washington, DC 20006 holmesd@UWCstrategy.org www.UWCstrategy.org 202-223-8904