Workers' Comp: A Brewing Crisis for States?
By Pamela M. Prah, Staff Writer
Double-digit hikes in what employers pay for workers' compensation have state lawmakers scrambling to figure out ways to cut costs.
Govs. Jeb Bush (R) of Florida, Gary Locke (D) of Washington and Bob Wise (D) of West Virginia all called special sessions this year to look at the system that pays for medical care and provides cash benefits for workers injured on the job. Florida and West Virginia approved significant changes, while Washington's changes were limited to hearing loss claims.
"Usually states don't react until the situation has bubbled over into a crisis and that's exactly what happened in these states," said Robert P. Hartwig, chief economist of the Insurance Information Institute, a New York City-based trade group of the property/casualty insurance industry.
In Florida, the "crisis" was reflected in the high costs of claims filed by workers who were permanently disabled -- nearly three times the national average. In West Virginia, its state-run workers' compensation system was set to go bankrupt in 2005 while Washington's state-run system saw rates go up by nearly 30 percent. The states also had concerns about workers, employers and medical providers bilking the worker compensation systems.
Workers' compensation "reforms" are always popular, but the sluggish economy and skyrocketing premiums are shining an even brighter spotlight on the issue, experts said. The interest in addressing the "unfinished workers' compensation reform" is higher now because employers and states -- are "feeling the pinch" said Eric Oxfeld, president of UWC Strategic Services on Unemployment and Workers' Compensation, a business association that specializes in workers comp and unemployment issues.
"The business slowdown has motivated employers to try to trim costs, including workers' compensation costs," said Gregory Krohm, executive director of the International Association of Industrial Accident Boards and Commissions, a trade association representing government agencies which administer workers' compensation systems throughout most of the United States and other nations.
Workers' compensation insurance varies from state to state and so do the "reforms," said Justin Marks, a research analyst who specializes in labor and insurance issues for the National Conference of State Legislatures. Marks predicted more states would turn to the issue next year.
Unlike Medicaid or the unemployment insurance system that states run in conjunction with the federal government, workers comp is regulated strictly by the states. A handful of states Ohio, North Dakota, Washington, West Virginia and Wyoming run their own exclusive workers' compensation insurance funds and essentially have monopolies of workers' comp in their states, said Bruce Wood, assistant general counsel to the American Insurance Association, a trade group of the property and casualty industry.
Hartwig said one reason premiums are climbing is because the growth in workers' compensation medical costs is even steeper than in the health care industry as a whole. The average premium that employers pay for workers' compensation jumped 15 to 20 percent this year and more than doubled in California over the past three years, Hartwig said.
Hartwig called workers' comp a "silent crisis" that state lawmakers need to address or they may face the prospect of bigger problems ahead. "Every legislature should be aware of what is going on in California and take a vow not to be the next California," he said.
Medical expenses are higher in California due to what insurers call "over-utilization" of medical care services and generous benefits. For example, in California, injured workers go to chiropractors 34 times, compared with other states that average 15. Average payments per claim to California chiropractors are 148 percent higher than 11 other states, according to Workers Compensation Research Institute, an industry-based research group based in Cambridge, Mass. The major driver was "higher utilization" of chiropractors, the institute said.
The Los Angeles County Economic Development Corp. (LAEDC), a private nonprofit organization that promotes businesses in the region, pointed to the state's workers' comp insurance "crisis" as a major hurdle causing the state's economy to remain in a jobless growth. "The huge increases in the cost of coverage have caused other business to hold back on hiring or even let workers go," Jack Kyser, chief economist of the LAEDC, said in a statement.
Intense competition in the 1990s forced several California insurers out of business. As a result, the California State Compensation Insurance Fund, the nonprofit state-run fund that was designed to be the market of last resort, is now the largest insurer in the state, Krohm said.
Some 60 worker comp bills are pending in the California Legislature, but observers said the state's yawning budget deficit and the effort to recall Gov. Gray Davis (D) will make it even more difficult for the state to tackle its workers comp situation.
Nationally, the number of claims workers file has been dropping steadily in recent years due to greater emphasis on workplace safety from employers and insurers. However, the amounts paid to workers who file claims continue to climb. Industry experts say the reason is that workers comp benefits tend to be more generous than employer health care coverage and often don't have as many restrictions.
Hartwig and Krohm both said they expect more states next year to clamp down and consider more limits on the number and kinds of treatments injured workers can receive. States also may restructure the choice of medical providers that injured workers must go to get treated, they said.
Here's a roundup of what has happened this year:
- Florida's new law reduces the amount hospitals will get reimbursed while increasing the amount certain specialty physicians get for workers' compensation claims, with the idea that workers will get treated cheaper in an out-patient setting. The legislation also replaces the hourly attorney fee with a contingency fee system and requires proof that an injury is preventing an employee from working.
- Washington's special session was to look at worker's comp, unemployment insurance and business taxes, in part, to make the state more attractive to lure The Boeing Co. The new law gives workers two years from the time of their last exposure to occupational noise to file for hearing loss compensation. The aim was to curb the escalating number -- and costs -- of hearing loss claims. The number of claims has climbed to 4,218 in 2001 from 884 in 1992 and the cost has risen to $40.3 million in 2001, from $3.3 million in 1992, according to the governor's office.
- West Virginia plugged a projected $225 million shortfall by shifting general funds and using proceeds from the tobacco settlement. The new law overhauls the way injured workers are treated, including creating a new managed care organization, and steps up fraud enforcement. The legislation also makes the Workers Compensation Commission a separate stand-alone cabinet-level agency, rather than part of the Bureau of Employment Programs.