Title: Project Director, UC DATA/Survey Research Center, Berkeley
Schools: Neuhauser received a B.A. in Economics from the University of California at Los Angeles and a masters degree in Public Policy from the University of the California at Berkeley
Awards/Honors: National Academy of Social Insurance—Member—2006; International Association of Industrial Accident Boards and Commissions — 2006 Award of Merit.
Favorite Book: The Sound and the Fury by William Faulkner
Influences: Dave Bellusci, the late Ed Woodward, Christine Baker, and Tom Rankin have all lent Neuhauser “a lot of insight” into the workers’ comp industry.

A prodigious researcher, Neuhauser has taken in-depth looks at the issues surrounding workers' comp fraud and abuse, and the lack of coordination between group health and workers' comp insurers. Neuhauser is also a frequent commenter on the Workers' Compensation Insurance Rating Bureau of California rate filings, offering an independent view of the pure premium impact of current cost trends.

What are the top three regulatory challenges facing the workers’ compensation system?  
I think I would name one overall challenge, in terms of regulation, that would cover my other thoughts on it. I think that we generally have too much regulation. It’s hard for stakeholders to find a problem where they don’t seek to find a regulatory solution. An example of this is the benefits notice process… [where there is even] language that is required by regulation. That makes things very expensive. It makes them slow and cumbersome and complicated without accomplishing much. It contributes a lot to administrative costs as well. An example of going in the right direction is the adoption of fee schedules that are linked to Medicare schedules. That was a great simplification. We have fee schedules that are complicated to put together and are expensive to do, and Medicare makes a big effort to do it right. Adoption of those has simplified the regulatory process. The area where we haven’t gotten there is a fee schedule for provider services based on the RBRVS system. It’s coming though. [In general] there is too much regulation that is too specific.

Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?  
We are not headed for a hard market. I think in general that the very low interest rates for capital out there mean that there will be plenty of capital available for investments, like workers’ comp insurance. As long as interest rates stay low—and we don’t have a reason to think they’ll rise—the market will remain competitive. Second, I think insurers are profitable at these levels and there are no reasons to think [premiums] need to rise.

Do you think that further reforms are needed for the governance of State Fund, for example, does it make sense to have Senate confirmation for board members?  
I don’t see a reason that you’d want Senate confirmation or to make it any more complex. It’s still essentially an insurance company. It generally acts well. It is and has been solvent. I think that other than loosening some regulation on employment, recognizing that market share changes and it needs to adjust employment accordingly, it’s operating really well.

Are medical provider networks a help or a hindrance? How should they be improved?  
The key to medical provider networks is networks being more selective about who they recruit into the network, monitoring doctors in the network, or encouraging networks to monitor doctors like group health. The networks that we see in workers’ comp have typically been drawn pretty widely. There hasn’t been an effort to recruit high-quality doctors and exclude doctors that consistently treat outside the guidelines. That would improve the quality of care for injured workers, reduce costs for employers… if you recruited more carefully and screened activities you could dispense with a lot of utilization review and medical cost containment effort currently imposed on doctors. This would make it easier to draw and pursue treatment plans. So far insurers have been hesitant to restrict membership in medical provider networks. One of the reasons is the Palm Medical Case, where the State Fund was sued for excluding a clinic from its provider network: people used that to explain not pursuing more narrow networks. That’s a complete red herring. It was a poor decision that wouldn’t be made now. People using that court case as an excuse not to be more aggressive about medical provider networks are making mistake.

How should utilization review be improved?  
Networks ought to be used to identify high-quality doctors and pursue good care, which reduces the need for utilization review. Over the past 8-9 years, you’ve seen medical cost containment go up 400%. They are now like 12% of medical costs. That’s absurd. The amount of money being spent on medical cost containment is completely out of line with any other medical system.

What needs to be done to improve return-to-work?  
First off, evidence is that return-to-work has improved dramatically over the past five years. There has been a lot of improvement due to reforms. A lot is because we have controlled excessive medical treatment, like long-term physical therapy, chiropractic visits, and occupation therapy. Curtailing those has led to quicker return-to-work. To improve more, I would take temporary disability out of workers’ comp and I would move it into state disability insurance. All temporary disability should be paid for in the state disability insurance system. The advantage would be to have no more workers trying to claim against employers and no more conflict over the reason for an occupation/non-occupational illness. This would also improve relations between employers and employees. The state disability system is more efficient at delivering benefits. Only five states have it. [State disability insurance] has a non-occupational disability program that is virtually identical to workers’ comp. They deliver temporary disability benefits if you’re working and injured off the job. It’s a mirror of workers’ comp. We run these two parallel systems that overlap a lot. We would gain a lot if we integrated these two systems.

What do you see, other than medical, as the next big cost driver?  
I think the big cost driver, bigger than medical even, is the administrative costs in the workers’ comp system. An example would be, in group health, it costs about 14 cents to deliver $1 of benefits. In workers’ comp it costs $1.40 to deliver $1 of benefits. It’s a much bigger cost driver than medical and indemnity. Something must be done to reduce administrative costs. That’s what is driving costs in workers’ comp. That’s the only area where costs are increasing. That’s the dominant cost in workers’ comp, but that’s no the dominant cost in group health. That’s what people have to target.

Now that the federal health care bill has become law what impact, if any, do you see on workers’ comp, and what are your concerns?  
I think the main place that workers’ comp is going to see some issues is [where] there will be a bigger push to see if the health care side can recover costs from the occupational side. Think about electronic medical records. It will be much easier for the system to track [new] conditions that may be related to prior conditions [as opposed to] now, where records systems are Balkanized. It will be easier on the part of health insurers to try and recover costs from workers’ comp insurers. I see that as a counterproductive turn of events. We will spend a lot of time and money arguing about who should pay for treatment rather than finding a more efficient way of getting the payment done. That is going to be one of the negative side effects of this bill.

What is the effect of more than $1 billion in payroll being absorbed by the self-insured groups?  
[We’re going to see] a lot more bankrupt self-insured groups. I think the evidence on self-insured groups is that they’ve turned out to be a very expensive way to deliver workers’ comp insurance. If anything, many of them are nothing more than Ponzi schemes. They can go on as long as they’re adding members. They can’t make the financials work. It’s typical for the administrators of a self-insured group to take 30-50% of the revenues collected for the process of setting up and handling the self-insured group, not for claims. There’s no way they can operate in the long run profitably with 30-50% going off the top. Consequently, you’ve been seeing self-insured groups go broke. I think it is plausible to set up a self-insured group, but not with the current model.

Governor Schwarzenegger signed bills allowing predesignation to continue (SB 186), tweaking utilization review (AB 361), and limiting the denial of benefits (AB 1093). There are also several bills currently moving through the Legislature that would extend benefits for specific occupational groups. What impact could these, if any, have on costs?  
I don’t think the bills that have been signed recently will matter too much.