Like any work environment, municipal employment holds potential liability risks for employees — from occupational illnesses to work-related accidents. Workers’ compensation programs play an important role in protecting both employees and cities from health-related uncertainties.
Workers’ compensation is subject to many regulations on both federal and state levels and varies from state to state. However, municipalities have some choices in how they approach it. Increasingly, they are also exploring methods beyond the traditional commercial insurance company, including self-insuring and pooling together.
Self-insured: Minneapolis, Minn.
Like many large cities, Minneapolis is self-insured. Ellen Velasco-Thompson, director of risk management for the city, states that it’s easier for small entities to outsource. However, in the case of Minneapolis, there are also council members involved who want more control over costs. Minneapolis handles the cost of outsourcing by using in-house administration, which provides easy access for city employees and departments. To be self-administrating, the city received a license from the U.S. Department of Commerce, must undergo audits just like commercial insurance companies and abide by state and federal regulations. If the city fails to do any of these, Minneapolis risks losing its license.
“Many people say, ‘Oh, the city wants to be self-administrating because they want to be able to say no,’ but that is just not true. We have to answer to rules and regulations,” said Velasco-Thompson, noting that attorneys keep them within the law. “When an injury has been reported, why deny a claim?”
In fact, very few claims are denied, according to Velasco-Thompson — with one exception being claims by employees who were intoxicated on the job.
Minneapolis uses a system designed to reduce liabilities through asking specific questions, such as how many claims occur during a certain shift or how many claims are due to extended hours. This data is examined and then used by company departments to cut down on the liability risks. However, when claims do occur, employees have a set process they follow. It begins with reporting the injury to a supervisor.
After the first report, documentation is sent to the in-house administration department, which immediately starts processing the claim, reporting the data and arranging physician visits for the injured employee. The city has also outsourced pharmaceutical needs to pharmacies in the state so employees can pick up their medication without delay or hassle. The pharmacies report the pickup to the in-house administration. If a medication has been rejected by the in-house administration, the pharmacy will swallow the cost. Minneapolis has arrangements with hospitals and emergency rooms, too, which allow data to be collected on the go.
When an employee is ready to return to work, doctor’s restrictions are taken into account. It is determined whether the employee’s job needs to be modified or whether he or she needs a new job within the city to meet those restrictions. Throughout the process, Minneapolis must comply with state and federal regulations, as well as report accidents where three or more employees have been injured or there has been a fatality to Minnesota OSHA.
“Three people handle our worker’s compensation claims. These same people are available each time an employee or department head has a question and can explain the process,” Velasco-Thompson said, contrasting their system with commercial insurance agencies where multiple individuals could be involved in one case.
The whole process aims to cut back on delays and allow employees to return to work in a
timely manner so pensions and seniority remain intact. Beyond helping employees’ pockets, Minneapolis’ process also saves the city money.
“Overall cost savings for workers’ compensation is four times higher than being commercially insured. Tort costs would be double the cost,” Velasco-Thompson said.
The group self-insurance option
A more palatable solution for smaller cities is to pool together in municipal leagues. Municipal leagues have emerged as a resource for insurance needs and the handling of workers’ compensation through the formation of group self-insurance programs — which have become a much sought-out alternative to traditional commercial insurance carriers. A number of those carriers withdrew from the municipal insurance market after disasters like Hurricane Katrina and 9/11.
The Michigan Municipal League has created a workers’ compensation fund that covers all 850 league members, making the fund the fifth largest municipal insurance provider in the country. According Mike Forster, director of risk management, the league consists of large cities like Troy, Mich. — the largest member — to smaller communities across the state. It was formed in the late 1970s and early ’80s after commercial insurance carriers first began to back out of the municipal insurance market. The fund’s mission is to provide stability and cost-effective risk management for members and associate members of the Michigan Municipal League. It’s governed by municipal officials who understand the needs of municipalities. But because the MML is a nonprofit organization, league members see numerous benefits that include any surplus being returned to them through dividends. They also have the lowest rates within the state.
“The major advantage of group self insurance is any benefits from safety efforts that result in claims better than that premium will end with the interest being returned to members,” Forster said. According to Forster, members have seen approximately $7 million returned to them each year since the fund’s start. PennPRIME Insurance Trust has been the answer to many municipalities’ insurance and worker’s compensation needs throughout Pennsylvania. The trust is a service approved by the Pennsylvania League of Cities and Municipalities. Much like the Michigan Municipal League Worker’s Compensation Fund, it was created as a result of commercial entities pulling out of the municipal insurance market and has a board of trustees with members that have municipal and insurance backgrounds. PennPRIME Insurance Trust also returns dividends to its members while using a third party administrator to handle claims and work directly with employees. In addition, the trust provides grants to members to address and improve risks in the work environment to prevent workplace mishaps.
All 160 members of PennPRIME are professionally managed communities. “We walk in and look to make sure they are professionally managed,” said Robert Anspach, director of insurance PennPRIME. “We are constantly bidding against private companies and are very much in competition for professionally managed communities.”
Municipal leagues compete against commercial entities in a market that Anspach describes as “hard” — with the cost of worker’s compensation rising for not just the leagues, but for commercial insurers as well.
Nashville, Tenn., is a unique case on the subject since in the mid-1960s the metropolitan city opted out of worker’s compensation. Instead, they utilize their own program called Injured on Duty an equivalent to worker’s compensation. IOD is a self-insured program, which is administered by a third-party administrator, and since it is not workers’ compensation, the program is not subject to the same requirements. All claims are sent to the third-party administrator, who then forwards them on to the group health platform provider, BlueCross BlueShield. The group health platform came about in ’08 when Metro Nashville approached BlueCross BlueShield to fill the role of health platform
provider — a unique situation in Tennessee. “No one in the state was doing this,” said
Shannon Hall, human resources administrator with Nashville. “BlueCross was willing to handle it, I feel as part of our already long-standing relationship with them.”
According to Hall, the partnership with BlueCross provides deep financial savings while
not sacrificing the care received by employees. In fact, the partnership allows employees to pick a health-care provider from a large pool. Since half the population already belongs to a BlueCross PPO medical plan, their regular doctors are available to them. Employees are also saved headaches if they go through IOD network providers because that way they incur no out-of-pocket expenses. All treatments, including pharmacy benefits, are covered at 100 percent. Those who visit doctors outside of the IOD network are initially responsible for copays and deductibles for which the third-party administrator reimburses them.
Other unique cases no doubt exist across the U.S. in regard to how municipalities handle
workers’ compensation, with regulations differing from state to state. Different municipalities also have different needs and present different solutions that decrease liability risks and financial disaster when the unexpected occurs.
BY SARAH WRIGHT