Marijuana and insurance: The topic has garnered its fair share of attention in industry press. Yet uncertainty regarding the potential impact on the workers’ compensation industry persists. In large part, this lack of clarity can be attributed to differences in federal and state policies and a legal gray area that this rift creates.

While states continue to pass legislation legalizing medical marijuana use, the drug remains strictly illegal at the federal level. With few exceptions, courts have consistently sided with the federal government in recent insurance-related litigation where medical marijuana is concerned,¹ thus providing the insurance industry respite from the need to address the many outstanding issues that linger. These rulings—coupled with Article IV of the U.S. Constitution, which directs that federal law overrides state law when the two stand in opposition—appear to provide employers and insurers alike with relatively solid footing to stand on in denying reimbursement as long as medical marijuana remains federally illegal.

However, these circumstances may be changing soon. The political climate in our nation’s capital surrounding medical marijuana appears to be evolving relatively quickly, and a number of federal pro-marijuana resolutions were approved during the summer of 2015. If federal policy continues down a path to legalization and the conflict with state law is eliminated, what happens next? In this report, we will examine the current status of medical marijuana policy and highlight some of the resulting challenges that face the insurance industry.

Public opinion and state legislation

In 1996, the state of California passed Proposition 215 and became the first state in the United States to legalize the medical use of marijuana. As of July 2015, 22 additional states and the District of Columbia have followed suit and legalized medical marijuana, 16 other states have legalized non-psychoactive cannabidiol (CBD) oil, and two more states currently have pending legislation or ballot measures related to medical marijuana legalization. While the specific regulations and possession limits vary by state, the intimation of this shift in public policy does not—the majority of the American public is in favor of medical legalization. In fact, recent polls by CBS News and Third Way gauged the overwhelming support of legalized physician-approved medical use of marijuana at 84%² and 78%³, respectively.

It is not only medical marijuana that has majority support, either. The public opinion toward general, or recreational, marijuana legalization has changed dramatically in the past 20 years. According to the latest survey by the Pew Research Center, 53% of Americans favor recreational legalization—up from only 25% immediately prior to California’s legalization of medical use in 1995.⁴ Four states—Colorado, Washington, Oregon, and Alaska—and Washington, D.C.,⁵ have legalized recreational use. Without question, the topic of recreational legalization is more nuanced and divisive than that of medical use (and deserves more attention than it will receive here), but the increased support has served to de-stigmatize and foster forthright conversation regarding both the positive and negative effects of marijuana use.

Federal marijuana policy

Despite the significant shifts in public opinion and state legislation, the federal laws related to medical (and recreational) marijuana use have remained staunchly unchanged since the passage of the Controlled Substances Act (CSA) of 1970. The CSA classifies marijuana as a Schedule I drug, declaring that it possesses “high potential for abuse” and “no currently accepted medical use.” As mentioned above, the disparity between state and federal laws creates a problematic gray area of law enforcement, societal acceptance, and financial implications. However, the groundswell of public and legislative support in recent years may herald an impending change in federal policy.

In February 2014, 18 members of Congress, led by Representative Earl Blumenauer (D-Ore.), penned a letter to President Obama requesting that the administration “delist or classify marijuana in a more appropriate way, at the very least eliminating it from Schedule I or II.” Removal from the CSA’s schedule may not be on the immediate horizon, but federal reclassification is looking more and more likely. In what may perhaps be a legislative turning point, the bipartisan Compassionate Access, Research Expansion, and Respect States (CARERS) Act was introduced in March 2015 by Senators Cory Booker (D-N.J.), Rand Paul (R-Ky.), and Kirsten Gillibrand (D-N.Y.). The CARERS Act, along with the House companion bill, H.R. 1538, aims to effectively legalize medical marijuana in states that have approved its use. The bill would amend the CSA and reschedule marijuana as a Schedule II drug, in turn opening new research opportunities and removing marijuana-specific barriers to research. (In fact, some of these barriers have already been eliminated by executive action from the Obama Administration.) Additional aspects of the bill amend federal laws to allow banks to service legally operating medical marijuana dispensaries and specifically allow states to dictate their own medical marijuana policies. The willingness of the Senate to at least deliberate the legitimacy of medical marijuana is evidenced by the recent passage—with bipartisan support—of three Senate appropriation amendments during the summer of 2015 that mirror the major spending provisions in the CARERS Act, albeit on a temporary one-year time horizon.⁶

In light of these legislative and societal trends, it is hard not to surmise that the question regarding federal legalization of medical marijuana has become one of “when” rather than “if.” Framing the issue in this manner raises the urgency of addressing the potential changes looming over the insurance industry. As such, insurance companies, self-insurers, and employers should start developing policies regarding the use, management, and reimbursement of medical marijuana.

Challenges facing the workers' compensation insurance industry

Limited medical research

Medical research in the United States on the effects of marijuana is significantly lagging behind that for other medicines and is generally insufficient in establishing scientifically accepted findings. The lack of quality research can be attributed primarily to marijuana’s classification as a Schedule I drug and to additional marijuana-specific testing regulations, both of which have hindered research efforts. The American Medical Association (AMA) itself has called for the reclassification of marijuana in order to facilitate further research. While certain barriers are being lifted, there remains a long road ahead to compile a medically accepted body of evidence on marijuana’s short-term and long-term effects.

Rescheduling, along with the increased testing that would likely follow, would open the door for approval of medical marijuana by the U.S. Food and Drug Administration (FDA). In order to approve a drug for a particular treatment, the FDA requires that a minimum of two adequately powered, randomized, double-blind, placebo-controlled clinical trials are conducted. Most conditions that qualify for medical marijuana treatment in states where use is allowed fail to meet these strict FDA guidelines.⁷

A specific challenge to the workers’ compensation industry is that much of the already limited existing evidence focuses on the drug’s potential as treatment for conditions and illnesses such as epilepsy, post-traumatic stress disorder (PTSD), Alzheimer’s disease, Parkinson’s disease, cancer pain, and others. Clearly, they are important areas of research for the well-being of our society, but they bear lesser importance in the realm of workers’ compensation insurance. Of more particular concern are considerations of the effectiveness of marijuana in treating acute, chronic, and neuropathic pain—symptoms most commonly associated with workplace injuries. In this vein, the benefits for chronic pain and neuropathic pain sufferers are fairly well established,⁸ but there remains dissent within the medical community, which is particularly due to the lack of substantial clinical trials evaluating the long-term safety of medical marijuana treatment.⁹

This general lack of medical consensus is a major concern underlying the entire policy movement to legalize medical marijuana. A more complete understanding of the effective uses and potential side effects is absolutely essential to determining the appropriateness of marijuana as treatment, especially when one considers the well-established psychotropic properties of the drug and the logistics of returning a claimant to the workforce.

Inadequate testing procedures

Because of the nature of marijuana’s interaction with the human body, there has yet to be a widely accepted objective measure of marijuana intoxication, such as there is with the blood alcohol content (BAC) measure for alcohol intoxication. Current testing procedures that measure levels of delta-9- tetrahydrocannabinol (THC) in blood, urine, saliva, or breath can only detect the presence of the drug or its metabolites and do not produce reliable indications of the users’ level of impairment or the time of last drug use.

A primary area of concern stemming from this inability to reliably test intoxication/impairment levels lies in determining the compensability of a claim. Many jurisdictions currently have legislation granting employers the right to dispute workers’ compensation claims in the presence of a positive drug screen or if the employee shows signs of intoxication at the time of injury. Proving that intoxication was the major—in some jurisdictions sole—contributing factor to the injury is a difficult defense to win regardless of the substance in question, and the lack of precision in marijuana testing casts further doubts on using a positive test as grounds for denial. The question also arises as to whether or not it is ethical to deny a claim upon a positive test if the worker is using medical marijuana under the supervision of a qualified professional. One could argue no, but simply allowing the presence of marijuana because an employee is prescribed the drug does not appear to be an appropriate response either as that could validate claims where impairment was the major contributing factor. Without a standardized and medically accepted measurement of marijuana impairment, this issue will remain problematic. Fortunately, the science and technology needed to develop adequate testing procedures are receiving a fair share of attention and support, principally because the problem as described above is nearly identical to the one facing regulators and law enforcement officials in determining marijuana impairment in automobile drivers.

Testing limitations also present a quandary for employers in how to manage active employment status of an employee who is legally prescribed medical marijuana for an appropriate medical condition. The recent Colorado Supreme Court ruling in Coats v. DISH Network effectively affords companies the right to terminate an employee for using state-approved medical marijuana, even if the use occurs off duty and the employee shows no signs of intoxication at the workplace as occurred in this case. The plaintiff, Mr. Coats, is a quadriplegic who used medical marijuana to treat symptoms of his condition in compliance with Colorado state law and procedures. Nevertheless, the court ruled that his termination upon a failed random drug test was lawful because his marijuana use was in direct violation of company policy and federal law. While this ruling appears to set precedent in maintaining a marijuana-free workplace, it is possible, if not likely, that a court would no longer rule in favor of an employer enforcing such policies if a federal rescheduling of medical marijuana occurs and the conflict between state and federal law is eliminated.

With federal legalization potentially occurring in the near future, it is imperative that employers and insurers develop robust policies and procedures related to off-duty medical marijuana use. In addition to situations similar to that of Mr. Coats, as described above, serious consideration must be given to the scenario where injured workers may find themselves in return-to-work positions prior to terminating approved medical marijuana use. The manner in which employers and insurers will effectively and safely manage these situations is beyond the scope of this discussion, but being aware of these potential risks as they emerge is an absolute necessity for those involved.

Reimbursement

Most states with approved medical marijuana use currently have specific language contained in the related legislation that absolves insurance companies from the duty to reimburse an insured for medical marijuana, providing unambiguous direction in this matter. However, one must once again consider the distinct possibility that these provisions may be amended in response to public pressure and/or a federal policy change.

One state, in fact, has already ruled in favor of insureds seeking reimbursement for medical marijuana use on three separate occasions—New Mexico.¹⁰ The New Mexico Court of Appeals ruled that the state’s Compassionate Use Act in conjunction with its Workers’ Compensation Act authorizes reimbursement for medical marijuana as “reasonable and necessary” medical care. These rulings, which cite a 2013 U.S. Department of Justice memo declaring that the federal government will generally defer to state authorities on issues involving medical marijuana, present a stark contrast to the Colorado Supreme Court ruling in Coats v. DISH Network and illustrate the uncertainty surrounding where the ultimate legal authority lies when state and federal laws conflict. Whether or not the New Mexico rulings carry over and affect reimbursement requirements in other states remains to be seen, but certainly the possibility exists that courts in other jurisdictions could make similar interpretations.

In addition to these formidable legal challenges, one of the foremost practical obstacles to those seeking insurance compensation for medical marijuana has been the lack of a standardized reimbursement rate. The difficulty in establishing appropriate costs is a legitimate concern for insurers. The conventional approach to standardized reimbursement rates for a drug is to receive FDA approval and a corresponding National Drug Code (NDC). This scenario is implausible without federal rescheduling to a Schedule II (or lower) classification and subsequent approval by the FDA. Further complicating this process are the limitations in medical research discussed earlier and the nonuniformity of the drug. THC levels found in marijuana can vary substantially from one sample to the next, making the determination of a standard “dose” difficult if not impossible. However, changes in federal policy (such as the passage of the CARERS Act or similar legislation) would open the door to this course of approval. It, therefore, must be considered by insurers and employers when developing related company policy.

For an alternative approach to determining reimbursement rates, we can again refer to the New Mexico rulings. The appeals courts determined that medical marijuana should be reimbursed as a service, similar to rehabilitative acupuncture or massage therapy, rather than a drug. This approach circumvents the need for FDA approval and an NDC, making it a likely direction for those seeking reimbursement to take because it would eliminate the FDA requirements and provide a logistically simpler and quicker path to implementation.

Fraudulent claims

A common and long-standing concern of the insurance industry regarding medical marijuana legalization is the potential emergence of a new class of fraudulent claims. Will insureds begin to claim some subjective malady (such as back pain) with the sole intent of procuring insurance-sponsored medical marijuana?

Unfortunately, the magnitude of this issue will not reveal itself until after potential legalization takes hold. The possibility of increases in fraudulent claim frequency cannot be dismissed, although it is likely that claim adjusters are generally well-equipped to face this challenge with existing methods of combatting questionable or fraudulent claims related to the abuse of other drugs such as opioids and benzodiazepines.

What happens next?

We have outlined some of the challenges currently facing the workers’ compensation insurance industry regarding medical marijuana and how those challenges may evolve if federal policy changes to permit state-approved marijuana use. The imminent threat to the current status quo is the CARERS Act, and while its approval is far from guaranteed, it is difficult to imagine the issue going away even if the bill fails to pass Congress, given the overwhelming public support. With this in mind, how can insurers and employers prepare for these changes?

A necessary first step is to ensure familiarity with the state legislation and the specific provisions contained therein for the jurisdictions in which one operates. Complete understanding of the current laws and regulations is the basic foundation needed in order to develop policies and procedures that effectively manage claimants and employees to minimize exposure to marijuana-related risk.

A continuous monitoring of the situation will afford that a company is not unprepared and vulnerable to unexpected developments. Those familiar with the operations of our federal government know all too well how last-minute changes and rewrites can affect passing legislation. Staying abreast of the latest developments in federal marijuana policy will maximize the time a company has to understand any potential changes and formulate an appropriate response.

Finally, a proactive approach has historically been the successful tactic. Companies that are unwilling to change and even those that simply take a passive approach to these types of developments will often find themselves left behind and scrambling to catch up. By having policies and procedures in place prior to market changes, companies will be able to meet the challenges head on and perhaps even benefit from the new landscape. On the other hand, companies that fail to address the changing market conditions that legalization could bring may see themselves go “up in smoke.”