Cuomo Focuses on WC Reforms Industry Leaders See Potential Gains
By Betty Flood Morrow and Katlin Nash
Albany, N.Y.—In a much needed change to workers’ compensation, Governor Andrew M. Cuomo recommended in his State of the State his plan to introduce legislation that will continue to reduce the cost and improve the administration of workers’ compensation for New York’s business and workers. Governor Cuomo’s proposals include:
• Provide savings to New York State’s employers;
• Eliminate unnecessary friction in the system;
• Alleviate, and ultimately resolve, the burden facing employers who are members of an insolvent Group Self- Insurance Trust;
• Simplify and reduce assessments on employers;
• Promote system-wide transparency, efficacy, equity, and consistency; and
• Create more competition in the insurance marketplace.
The Governor’s proposal to reform the Workers’ Compensation and Unemployment Insurance programs would result in $1.3 billion in savings to businesses.
“The legislation achieves these benefits by, among other things, closing unnecessary funds, and establishing a bonding program, and establishing a pass-through assessment process,” said Governor Cuomo.
“The legislation will provide immediate savings to these employers, capping employers’ outstanding liabilities and giving employers an opportunity to resolve their respective obligations,” the Governor concluded.
State Senator James Seward (ROneonta), Chairman of the Senate Insurance Committee, as well as Assemblyman Joseph Morelle (D-Rochester), Chairman of the Assembly Insurance Committee were excited about the recommendations. “I do expect this will be a big issue in 2013. It’s been a prickly problem of long standing of the last few years anyway,” explained Senator Seward.
“Let me just say I applaud the Governor for getting involved in this issue. The workers’ compensation reforms that we implemented back in 2007 have not benefitted the employers as efficiently in terms of making the system less expensive. Costs continued to go up for employers and it has been a drag on our economy and job creation,” explained Senator Seward. “In particular there is a problem of the group self-insured trusts. That has been a lingering problem. I am aware of many businesses and employers who were members of trusts through no fault of their own and all of a sudden their trusts were insolvent. They had been hit with huge bills.”
“The bonding aspect of assisting with particular groups of the self-insured trust problem I think is one part of a multi-faceted solution here. We may very well need to resort to some bonding in order to make sure that our injured workers needs are met, but also help to alleviate the exorbitantly high costs to employers,” continued Senator Seward. When queried on where the money would come from or who would be paying for the bonding the Senator said, “I am awaiting more details and the bill copy, but from what I know it is all part of a package that I think is overall very positive. We will have to work out the details once we receive them.”
The Senator said he is looking forward to working with the Governor and his colleagues and working out a solution because “it’s been a drag on our economy and many employers are uncertain about the future. They have these lingering bills from the years they were in trust,” explained Senator Seward.
Senator Seward also said “of course the high cost of workers’ compensation coverage in general is a drag on our economy and increases the cost of doing business in New York State. So if we can help to bring down the cost, settle the self-insured trust issue, and get that behind us, I think that will be very positive for the economy,” concluded Senator Seward.
Assemblymen Morelle, former Chairman of the Assembly Standing Committee on Insurance and now Majority Leader of the Assembly, is equally encouraged by the Governor’s proposal for changes to workers’ compensation. “We had a number of challenges related to self-insured trusts and a number of the participants in those trusts which has since run into significant financial trouble they have joint and several responsibility.
What the Governor intends to do, and asked us to consider, is for the State to enter into a bonding so that we can eventually finalize the obligations of the survivors of the trust so they will know with definitively how much their liability is going to be. Cap it and then we will presumably ask a private company to come in and manage those claims on a going forward basis. I think it makes significant sense. We have looked at this and talked about it for several years. I am pleased that the Governor has moved to try to address this concern,” explained Senator Morelle. “Otherwise the alternative is that the surviving members of the trust could have open-ended liability and would not have a way to accentually budget for their obligations going forward.”
“Ultimately, those individuals who have obligations under the current trusts would pay for it (the bonding) primarily through assessments. This allows it to be paid for in an orderly way to put, as I said, a cap on their obligation going forward and the revenues presumably big enough to pay off the bonds,” explained Assemblymen Morelle.
“I would like to see the proposal obviously in much greater detail to see if it is as it is described. As you know the devil is in the details. I certainly think, conceptually, it is something I would be supportive of. I want to see the details and obviously I want to confer with my colleagues.” Morelle continued, “I had actually spoken with members of the administration over the last eighteen months, perhaps longer, concerning the recommendations of the Governor for workers’ compensation.”
“Perhaps longer, since we had the issue of self-insured trusts and the remaining members so I have been very involved in conversations with them as well as the Workers Comp Board and others to understand what it is they were hoping to do and certainly I made my opinions known about these issues.”
Senator Neil Breslin (DAlbany), Chairman of the Senate Minority Insurance Committee offered his feelings on the proposed recommendations to workers’ compensation, “I think the Governor is proposing an easier way to allow workers to be paid. The bonding will allow employers not to have to pay a lot of interest. There will be details in the Budget. I applaud the Governor for trying to correct and streamline the workers’ compensation process.”
Assemblyman Will Barclay (R-C-I: Onondaga), Chairman of the Assembly Minority Committee on Insurance said, “I am happy the Governor is talking about workers’ comp. We have heard from a lot of small businesses in my district and I think throughout the State. That is one of the costs of doing business out of proportion in New York State.”
“Specific funding things to try to lower workers’ comp will depend on the budget, no doubt,” explained Assemblyman Barclay. “Some of the more policy type situations are not so driven by the money, but more change. For instance, there has been a lot of talk in the past about certain medical guidelines at workers’ comp. I don’t think that is necessarily budgetary.”
Assemblyman Barclay said the Governor recommends more competition in the insurance marketplace. Does that mean more insurance companies offering workers’ compensation? Is that it? “How do you encourage more competition?” said Barclay. “Obviously, unless there are some regulatory changes they suggest that is going to allow insurers easier workers’ compensation in New York State.”
Concerning the proposal to reform workers’ comp and unemployment insurance programs to result in $1.3 billion in savings, Barclay said, “there was a lot of talk last time to reform workers’ comp on how big the savings were going to be. There was a lot of excitement afterward. I don’t know if those savings ever really materialized as much as they thought they did. So whatever the Governor is proposing, you want to make sure the subjective is actually going to lead to savings going forward.”
“I would love to see who is going to pay the debt service on the bonding in the proposal. That is the biggest problem with those where the money is going to come to try to bail out some of these companies. I am sympathetic to the people who have huge liabilities. Their insurers are no longer solvent to pay them,” concluded Barclay.
Michael Barrett, Legislative Representative for the Independent Insurance Agents & Brokers of New York said, “I have seen an outline of the proposal and just my comment of it would be we are very supportive of the Governor’s proposal to streamline the workers’ comp system and particularly the deal with the ongoing problem of self-insured trusts which has been invested in the last several years,” explained Barrett.
Barrett said he is “very supportive of the Governor’s efforts particularly in the area of self-insured trusts to try to come up with a method to solve that problem which has been out there for several years.”
Self-insured trusts were a grouping of businesses that set up a self-insured trusts that was self-funded and it turns out they were underfunded, according to sources. So when the Workers’ Comp Board looked at their financial viability, they were way underfunded. Therefore, they didn’t have the resources to the pay the losses. So there has been this huge amount of money that is out there and the Workers’ Comp Board has been trying to figure out how to recoup some of those funds totaling something like $800 million. Referring to the self-insured trusts, our source said, “it is a real mess is what it is.” The businesses in the trusts were essentially assessable so if the trust went down each of the businesses that were in there could be assessed to make up the difference and of course with those kinds of numbers you are talking about some huge assessments.
Ellen Melchionni, President of the New York Insurance Association said she “was pleased to hear Governor Cuomo is making Workers’ Compensation Insurance a priority as the system in New York cries out for reform.”
“We encourage the Governor to take a broad look at the multitude of problems with workers’ comp in the state and seek to make meaningful changes. The system is currently beleaguered with problems. There is an established practice of artificial rate suppression occurring on a nearly annual basis, which in the long term benefits no one,” Melchionni continued.
“Additional reforms are needed to rein in costs and develop a mechanism that is affordable for businesses while protecting injured workers,” said Melchionni. “The current workers’ compensation system is burdened with escalating medical costs and wages and stretched even thinner by expenses to comply with increased regulation, not to mention continually plagued with fraud.”
“The role of the New York State Insurance Fund (NYSIF) does not help matters. NYSIF was created as the market of last resort, but in actuality, it is not. NYSIF is able to offer reduced rates because of their unfair competitive advantage and routinely writes business that could be readily placed within the voluntary market,” explained Ellen Melchionni. “NYSIF is exempt from the regulatory requirements private companies are burdened with including any rigorous form of reporting, pays a reduced assessment, and does not subscribe to the industry standard of paying agent commissions.”
Regarding the measures the Governor put forward in the State of the State, Melchionni believes the Governor’s proposals could have promise. “Closing the fund for reopened cases could be positive for both employers and the insurance industry, but a clearer outline of how the fund will be closed and on what timeframe is crucial. The Governor has projected that $300 million will be saved in closing the fund, so we look forward to those savings being realized.”
“The concept of consolidating the assessments on the outset sounds good, but NYIA needs additional information about how the change would be implemented and eagerly awaits the specifics. It is important to note that the assessments need to be reduced. New York’s assessments on workers’ comp premiums are substantially higher than any other state in the nation. In fact, New York’s 18.8 percent surcharge is nearly five times the national average of 3.8 percent and more than double than the second highest surcharge of 8.3 percent in Minnesota,” said Melchionni.
“The Governor’s initiative to address the growing concerns with the group selfinsured trusts sounds admirable. NYIA believes that any solution to help resolve the problem of the group self-insured trusts being underfunded needs to remain strictly between the state and the trusts.”
“NYIA welcomes the opportunity to work with the Governor’s administration and the legislature to create a better system. The current workers’ comp environment is unsustainable without adequate rates being paid and costs being cut in a manner that is in the best interest of the entire workers’ compensation market,” continued Melchionni.
“Property and casualty insurance companies fully understand the challenges with operating a business in New York since these companies are a part of the business community. The last thing NYIA wants is for the cost of doing business to increase, but like all businesses, the price of a product or service needs to correspond with the actual costs of running that business. The NYIA is hopeful that the Governor and the Legislature can put measures in place this year that will reduce costs within the Workers Compensation system that will benefit insurance companies and employers alike,” concluded Melchionni. “Governor Cuomo took a strong first step towards fixing New York’s Workers’ Compensation system with the agenda laid out in his State of the State address,” said Paul Jahn, Chief Research Officer for Workers’ Compensation. “The legislative details still need to be worked out. However, the Governor is not shying away from longstanding challenges facing the Workers’ Compensation system in New York.”
The Workers’ Compensation Policy Institute’s research on premium assessments showed that New York employers and taxpayers pay the highest premium surcharge in the country. “Currently, this tax stands at 18.8% of premium, nearly five times the national average,” explained Jahn. “A well-regarded Oregon study found that New York businesses pay the fifthhighest premium rates in the country, 150 percent of the national median,” Jahn said. “The very high assessments are included in this study’s data and contribute significantly to New York’s poor showing.”
“Finally, the Work Loss Data Institute (WLDI) measures outcomes of injuries in a biennial State Report Card for Workers’ Compensation. This study analyzes Occupational Health and Safety Administration (OSHA) data and grades states on both current outcomes and longterm trends. New York received a grade of F VI, the lowest possible score,” said Paul Jahn.
“The program bill will shut down the Special Fund for reopened cases and begin the process of eliminating the second largest assessment charged to New York employers. Whether savings will be realized immediately or over the long term depends on how ongoing losses will be funded,” explained Jahn.
“The largest assessment funds the Second Injury Fund. This fund was closed to new injuries in 2007. Employers continue to be assessed to fund existing obligations of the fund and expected savings have not yet been realized,” said Jahn.
“The bill intends to simplify the assessment process by creating a single statewide surcharge for all participants in the compensation system. Currently the system is funded by separate assessments on the New York State Insurance Fund, carriers, and self-insured entities. This universal surcharge should assure equity among the players and be simpler to administer.” “As with all legislation, the jury will be out on the Governor’s proposal until actual language is drafted and reviewed, and the bill passes the Senate and Assembly. Assessments are hardly the only issue involving workers’ compensation that cries out for reform. The Governor’s program agenda is a good first step to fixing the system that hopefully will result in a solid and effective law,” concluded Jahn. “The Council of Insurance Brokers of Greater New York (CIBGNY) is generally supportive of the workers’ compensation reforms proposed by the Governor in his State of the State message, although CIBGNY reserves the right to comment on the actual legislative language once submitted in bill form,” explained CIBGNY President Joe Bosnack, Jr. “The Administration should also bring the State Insurance Fund fully under the control of the Department of Financial Services, so as to place the voluntary insurance market on equal footing with SIF, which CIBGNY has long advocated. Moreover, anything that can be done to reduce the underlying medical costs of workers’ comp claims that are spiraling out of control, should be pursued as well,” said Bosnack.
“While the Professional Insurance Agents of New York State Inc. (PIANY) have not taken a formal position on the Governor’s proposals on workers’ compensation, we support the idea of making it easier to do business in our state and implementing reforms to the system that will deliver essential benefits to injured employees at a manageable expense,” said Director of Research Dan Corbin for PIANY. “Governor Cuomo outlined a number of workers’ compensation initiatives in his State of the State address, including proposals to resolve employer group selfinsurance trusts liability; combine all of the workers’ compensation assessments into one assessment and create a single process for calculating assessments irrespective of how an employer maintains workers’ compensation coverage; and reducing costs for stakeholders by closing unnecessary funds.”
Corbin said “these initiatives come on top of 16 separate legislative proposals that deal with Workers’ Compensation insurance, including measures to:
• Authorize the care and treatment of injured workers by acupuncturists;
• Exempt occupational diseases caused by tobacco smoke from a statute that requires injured workers to file a claim within two years after knowing that the disease was due to the nature of employment;
• Provide that assessments of selfinsurers, the State Insurance Fund and all insurance carriers for the workers’ compensation special disability fund shall be based on 110 percent, rather than 150 percent, of total disbursements from the fund during the preceding year, less the amount of the fund’s net assets as of December 31st of such preceding calendar year;
• Exempt injured workers injured by a sexual assault from the exclusive remedy of workers’ compensation;
• Require employers of farm workers to provide workers’ compensation coverage and grant a host of other rights, including collective bargaining and overtime pay; and
• Authorize the Workers’ Compensation Board to approve a monthly dollar allowance or treatment frequency for an injured worker to continue specialized treatment for workers whose injuries are long-term or permanent.” “Additionally, Governor Cuomo outlined a number of workers’ compensation proposals in his State of the State address, including proposals to resolve employer group self-insurance trusts liability; combine all of the worker’s compensation assessments into one assessment and create a single process for calculating assessments irrespective of how an employer maintains workers’ compensation coverage; and reducing costs for stakeholders by closing unnecessary funds,” explained Corbin. “We look forward to seeing the proposed legislation and to providing input that will improve our system,” concluded Corbin.
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After the writing of this story —Governor Cuomo said the Executive Budget contains a series of reforms, which will benefit all businesses with employees by reducing the cost of purchasing workers’ compensation insurance. Reforms will provide $900 million in savings to employers by reducing assessments and streamlining the system, while a new bonding program will assist 10,000 businesses in defaulted trust and resolve their liabilities. These reforms result in significant economic benefits to businesses in the State without affecting the rights of workers.
Governor Cuomo under the headline of mandate relief and local government aide said the Executive Budget contains a series of reforms to reduce the cost of purchasing workers’ compensation insurance without affecting the rights or benefits of workers. This will provide financial relief for all insured government entities.
During the Budget Presentation for 2013-2014 the Governor announced workers compensation reform/rightsizing SIF: Scheduled increased, proposed increased, and savings of $250 million.
Speaker Sheldon Silver that he has appointed Kevin A. Cahill (D-WF of Kingston) as the new Chair of the Assembly Majority Insurance Committee replacing Assemblyman Joseph Morelle who has been promoted to Assembly Majority Leader.
