The Council is relying on the Workers' Compensation Administration to address many of these problems

Mdannemann

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Advisory Council on Workers' Compensation and Occupational Disease Disablement

Annual Report for 2006

PAGE 1

Annual Report of the

Advisory Council on Workers' Compensation

and Occupational Disease Disablement - 2006

The Advisory Council on Workers' Compensation and Occupational Disease

Disablement is a statutory body created by the Workers’ Compensation Law of New Mexico,

whose members are appointed by the Governor to represent employers and workers.

Our duty is

to report annually to the Governor and Legislature concerning the state of the workers'

compensation system and to make recommendations regarding legislation.

The Council reports there are several proposed legislative changes for the 2007

legislative session.

We have studied the following issues and support and recommend changes to

the Workers' Compensation Act in the following areas:

•

Require the use of the most recent edition of the American Medical Association’s Guide

to the Evaluation of Permanent Impairment in calculating the amount payable for loss of

use.

•

Prohibit payment of indemnity benefits to prisoners, except for payment of child support.

•

Prohibit the accelerated payment of modifiers.

•

Limit modifier benefits to prevent the payment of weekly indemnity benefits from

exceeding the pre-injury average weekly wage.

Mission

The mission of the Advisory Council on Workers' Compensation and Occupational

Disease Disablement is:

•

to monitor the performance of the workers' compensation and occupational disease

disablement system; and

•

to make recommendations to the Governor, Legislature, regulatory agencies and

participating industries, related to the adoption of rules and legislation and the

method and form of statistical data collections;

in order to assure the quick and efficient delivery of indemnity and medical benefits to

injured and disabled workers at a reasonable cost to employers.

Summary and overview:

the state of the workers' compensation system

We find that the workers' compensation system is generally stable.

While we have

concerns about adverse trends related to health care costs, we believe that those issues are being

addressed by the Workers' Compensation Administration (WCA) through rulemaking and other

means, and do not require legislative attention.

Decrease in premiums.

In a filing request approved in October 2006, by the Department of Insurance, overall rate

reductions of 4.2 percent were approved for the voluntary market and an overall premium

reduction of 1.3 percent was approved for the Assigned Risk Pool.

The reductions will go into

effect on January 1, 2007.

This reduction follows an overall 3 percent rate reduction requested by New Mexico

Mutual in April.

The reduction approved in April affected only the Mutual and not any other

New Mexico insurance carriers.

Advisory Council on Workers' Compensation and Occupational Disease Disablement

Annual Report for 2006

PAGE 2

Not all businesses will be eligible for this premium reduction.

Businesses with a poor

safety record and a high number or severity of work-related injuries will continue to pay

premiums based on their individual experience.

Insurance premiums decreased throughout the 1990s, following the major reform of the

system under the 1991 Act.

The downward trend ended in year 2000.

Premiums have been

moving steadily upward ever since, consistent with the national trend until this past year where

changes were enacted by the WCA to lower hospital costs and ambulatory surgical costs.

These

changes, combined with an overall 4.5 percent reduction in work-related accidents by New

Mexico businesses, have resulted in a better overall experience rating for NM.

Improving safety

trends and the total amount of benefits being paid out by insurance carriers were reduced because

of fewer work-related injuries.

Control of hospital and system costs

Analysis by both the WCA Economic Research Bureau and the National Council on

Compensation Insurance (NCCI) shows that a major cost driver is hospital costs for injured

workers, which have been increasing disproportionately compared to all other system costs.

The

two major challenges for the workers’ compensation system over the past five years have been

the increased premiums due mainly to rising healthcare costs and the ability of the WCA to

maintain an equitable balance between competing interests of injured workers and employers.

Given the relative pricing structure of the WCA’s previous fee schedules in relation to

regional and national healthcare markets, New Mexico’s Maximum Allowable Prices (MAP)

continued to be among the highest in the nation. As a result of double-digit increases in

healthcare costs, the WCA enacted a rule to decrease the reimbursement of hospital inpatient and

outpatient services by lowering the hospital ratio fee schedule.

Beginning in 2007, the outpatient surgery centers will be paid according to a Medicare-

plus fee schedule, and the physician fee schedule will be brought into a cost-basis of current rates

based on CPT codes. The new physicians’ MAP will have some of the major price discrepancies

adjusted for the first time since 1995.

To maintain a balance between the interests of injured workers and employers, the WCA

stepped up the regulation of late initial payment of wage benefits and improved the process for

bringing claims administrators into compliance. The WCA is further addressing system costs by

proactively visiting businesses to educate them about insurance coverage requirements and

techniques for maintaining a safe work environment.

The Advisory Council foresees a successful rulemaking process, so that costs will be

adjusted gradually and moved closer to reasonable fair market value to better enable insurers to

hold the line on premiums.

Enforcement of the coverage requirement

The WCA is responsible for making sure that employers have workers' compensation

insurance coverage.

The Advisory Council notes that improving compliance has been a major initiative under

the current administration, focusing on “never insured” employers, those who have never

obtained insurance due to lack of knowledge or deliberate violation of the law.

In addition to

Advisory Council on Workers' Compensation and Occupational Disease Disablement

Annual Report for 2006

PAGE 3

stepped-up efforts to locate these uninsured employers through direct contact methods, the WCA

is now leveraging new technologies to support the process.

A Proof of Coverage Data Base is now publicly accessible on the WCA web site

(www.workerscomp.state.nm.us), enabling anyone to look up an employer and find the source of

coverage.

If no coverage data is available, the person making the inquiry may contact the WCA

for further assistance, including forwarding the matter to our compliance unit.

(Note that a lack

of data does not mean there is no coverage; often employers purchase coverage under a different

name from the public name of their business.)

The WCA is also moving toward data base match capabilities through new partnering

agreements with the New Mexico Department of Labor (DOL) and Taxation and Revenue

Department (TRD).

When fully implemented, these methods will enable the WCA to identify

many more businesses to determine whether they are carrying the mandatory insurance coverage

and paying the quarterly assessment fee.

Uninsured Employer’s Fund

The Uninsured Employer Fund (UEF) continues to be an important program for New

Mexicans.

The UEF provides indemnity and medical benefits to injured workers who were

supposed to be covered by workers’ compensation insurance and helps the WCA identify and

prosecute noncompliant employers.

Because long-term liabilities exceeded the projected

revenues, the WCA took steps to protect the fiscal viability of the UEF program by enacting a cap

of $80,000 per claimant in 2006.

It is estimated that over 90% of claimants will still be fully

protected through this measure and that it will also enable the UEF to protect the workforce well

into the future.

Summary of positions on specific issues

The Advisory Council will support:

•

Amending the Workers’ Compensation Act to require the use of the most recent

edition of the AMA Guides for Permanent Impairment in calculating the amount

payable for loss of use.

Summary:

The proposal requires evidence-based medical findings through utilization of the most

recent edition of the American Medical Association’s Guide to the Evaluation of

Permanent Impairment in calculating a partial loss of use to specific body members.

•

Amending the Workers’ Compensation Act to prohibit payment of indemnity

benefits to prisoners, except for payment of child support.

Summary:

The proposal prohibits the payment of indemnity (wage) benefits to an injured worker

during any period of incarceration for a criminal conviction.

The proposed change

contains one exception to allow the continued payment of court ordered child support.

This change does not affect the employer’s obligation to continue to provide medical

benefits.

Advisory Council on Workers' Compensation and Occupational Disease Disablement

Annual Report for 2006

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•

Amending the Workers’ Compensation Act to prohibit the accelerated payment of

modifiers.

Summary:

Prohibits accelerated or advance “lump sum” payments based on disability modifiers,

unless all parties agree and a workers’ compensation judge approves.

Premature lump

sum payments based on modifiers result in overpayment, and generate collection lawsuits

against injured workers at the conclusion of the injury claim.

•

Amending the Workers’ Compensation Act to prevent the payment of weekly

indemnity benefits from exceeding the pre-injury average weekly wage.

Summary:

Limits payment of weekly indemnity benefits and modifiers after worker’s post-

Maximum Medical Improvement (MMI) return to work to the average weekly wage

defined in the Workers' Compensation Act.

The Advisory Council recommends the

amendment to control the payment of disability benefits attributable to modifiers to

prevent the disability wage payments from exceeding pre-injury wages.

Status Report on the Workers' Compensation Administration

The New Mexico Workers’ Compensation Administration (WCA) has been fully

engaged on a professional journey to achieve its primary goal: a better New Mexico for workers

and employers through responsive, effective, and continually improved services. The WCA’s key

customers are New Mexico’s workers and employers.

Other valuable parties in the system are

referred to as stakeholders.

Toward this end of achieving a better New Mexico, the Agency is focused on three key

service processes: education, regulation and dispute resolution.

The Agency is providing better

education services regarding workers’ compensation and workplace safety, better regulatory

services to keep system costs within reasonable marketplace pricing, and better dispute resolution

services to ensure timely and appropriate payment of medical and indemnity benefits. The WCA

is identifying workers’ compensation challenges and proactively addressing issues for the

improvement of our communities.

The WCA has undergone a major transformation in its quest to be a “best of the best”

organization in order to effectively respond to customer needs and proactively evolve with the

economy.

The transformation began in January 2003 by thoughtfully determining an ideal

organizational profile.

The organizational profile describes the nature of the WCA, and is the

starting point for the agency’s continual self-assessment and improvement.

The organizational profile lists the fundamental components of the agency’s constructive

work environment that constitute the foundation of the WCA Culture and its focus on moving

New Mexico forward:

(1)

Vision:

One team, one goal: A better New Mexico for Workers and Employers.

(2)

Mission

: To assure the quick and efficient delivery of indemnity and medical benefits to

injured workers as a reasonable cost to employers.

(3) Core Values:

Used in all internal and external interactions:

RESPECT:

R

espect,

E

thics,

S

ervice,

P

rofessionalism,

E

xcellence,

C

ourtesy,

T

eamwork.

Advisory Council on Workers' Compensation and Occupational Disease Disablement

Annual Report for 2006

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(4) Strategic objectives:

To accomplish its mandate to provide excellent services to New Mexicans under the

Workers' Compensation Act and to maintain balance in the system, the WCA has identified five

outcome-based major strategic objectives:

1)

Increase the number of employers complying with the insurance coverage

requirements of the Workers’ Compensation Act.

2)

Decrease the number and severity of work-related accidents.

3)

Resolve Workers’ Compensation disputes accurately and timely.

4)

Increase compliance with the Workers’ Compensation Act.

5)

Improve agency processes and methods.

All WCA employees and bureaus link their activities directly to the strategic objectives

and regularly measure their performance to ensure that the agency’s resources are being used

cost-effectively to fulfill the statutory mandate and achieve the WCA vision.

Conclusion:

The New Mexico Workers' Compensation Administration is stable, well

managed and responsive to the dynamic challenges of the overall system.

A watchful eye must

be kept on rising healthcare costs in order to avoid unreasonable increases in insurance premiums,

and the financial viability of the Uninsured Employer Fund must be closely monitored and

safeguarded to ensure it continues to provide an alternative remedy for injured workers of

illegally uninsured employers.

These goals will be greatly supported by continual improvement

in insurance compliance and workplace safety.

Respectfully submitted,

Nick Kapnison,

David W. Barber,

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Mike Anaya,

Jude McMullan,

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Mark G. Henderson,

Fidel A. Muñoz,

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