How ADR programs can be a valuable tool
By Matthew Jones
While workers compensation coverage serves an important role in the construction industry, some fundamental flaws in the design of these programs can lead to higher costs. Construction in New York State, for instance, has historically been subject to a highly litigious environment, and these long periods of negotiation and litigation can lead to increased costs for policyholders and a reduction in the speed of care for those injured.
In response to a growing number of cases, the commercial insurance industry is reacting aggressively to mitigate its exposure. Underwriters are restricting coverage by not taking on construction risks, by increasing deductibles dramatically and by raising premiums to the point where projects are impacted as costs escalate.
The rising costs of workers compensation
According to Insureon, construction carries the highest workers compensation costs of any industry. Additionally, a major New York carrier reported that the severity of claims has dramatically increased. In 2010, the average value of a claim was between $300,000 and $500,000. Currently, the average value has grown to between $3 million and $3.5 million per claim.
This staggering increase can be attributed to several factors, including the cost of care, lost wages and the administrative costs associated with a claim. These cost overruns are not only due to an overall increase in cost but also a decreased focus in return to work on the part of the caregivers.
The problem is twofold. First, since healthcare providers are often not selected in advance, there can be disagreement between the carrier and the representatives of the injured party, often the union for union workers on which healthcare providers should treat injured workers. This can lead to prolonged periods of waiting and multiple independent medical examinations, during which the administrative fees increase while the injured party is claiming additional lost wages.
Second, some healthcare providers may be less interested in healing the injured worker and getting them back to the job site. Instead, they may be more interested in prolonged care that is focused on managing the injury and less interested in working toward recovery. While these approaches are often not nefarious, they do create situations where workers are being delayed care that has the potential to see them healed and ready to return to work.
So, what are agents and brokers to do when their clients are faced with rapidly rising workers compensation costs?
Since an alternative dispute resolution program is established in advance,
it nearly eliminates delays in getting injured workers
the care they need, resulting in faster and earlier treatment.
New solutions are needed
To combat cost overruns and cut the time it takes for an injured worker to receive care, new solutions will need to be introduced to supplement existing workers compensation products with plans for care that are established well in advance. Fortunately, even before the recent increases in workers compensation costs, these supplemental programs had already been introduced.
One example of a supplementary plan is an alternative dispute resolution (ADR) program. In 2012, Cornell University conducted a study on ADR programs for workers compensation in collective bargaining agreements, addressing the argued benefits of ADR programs supplementing workers compensation plans with preestablished plans for care.
This study identified rising costs, the volume of contested claims and delays in processing claims as challenges in the industry over a 10-year period. In the decade since that study, these challenges have only grown in complexity and impact.
The study itself highlighted four advantages of an ADR program that are still relevant today:
- They are a highly participatory process, meaning parties can more easily communicate with one another
- They offer greater freedom to fashion unique and appropriate remedies
- Parties have more control over the process
- Participation is voluntary
Under an ADR program, an additional agreement is made between construction projects and union labor. A program administrator acts as an impartial intermediary, which sets up pre-established processes for care for injured workers.
These agreements are made with three core goals in mind, establishing:
- A network of caregivers that meet the standards and conditions required by both union labor and the construction project
- A plan of care before an injury occurs
- A focus on return to work for injured workers
Since an ADR program is established in advance, it nearly eliminates delays in getting injured workers the care they need, resulting in faster and earlier treatment. In addition, since an ADR program utilizes a predetermined network of caregivers, there is no debate or negotiation between parties about which caregiver is more credible. This translates into better results for those injured, and less wages lost due to an injury.
Things to consider
While ADR can be a valuable tool, it is not the ultimate solution to all the problems in workers compensation. It is important to note that ADR programs do not replace workers compensation coverage; rather they function in parallel with traditional workers compensation plans.
As ADR programs are formed between construction projects and unions, any jobsite with both union and non-union labor would require the injured non-union laborer to follow the traditional workers compensation process for filing a claim.
ADR programs are only one of the tools growing in popularity as an option for those seeking to save costs and improve results for construction clients looking for relief from rising workers compensation costs.
As an industry, we will need to continue to develop new and improved solutions to drive down workers compensation costs without sacrificing standards of care or responsiveness to the needs of insureds.
Matthew Jones is vice president at Mediation Resolution Management, an ADR program administrator in New York. For more information, visit www.mediationres.com.