COVER STORY: Comp Costs Climbing

Albany, N.Y.—New York State increased its maximum workers’ compensation benefits significantly in 2007, but the perception that higher benefits explain New York’s high overall comp costs is inaccurate, a new analysis of the state’s workers’ comp benefit levels show by the Workers’ Compensation Policy Institute. the Workers’ Compensation Policy Institute.

“There does not appear to be any direct correlation between high benefit levels and high compensation costs,” says the study, New York’s workers’ comp: High benefits, higher costs by the Workers’ Compensation Policy Institute.

“The Workers’ Compensation Policy Institute is a think tank that examines how the workers’ comp system influences local taxes and services. The Institute focuses on nonpartisan policy research, issues, and ideas pertaining to workers’ compensation policy in New York State, especially on how these policy issues affect public entities and New York’s taxpayers. The Institute conducts surveys, analyzes data, evaluates workers’ compensation issues, and ‘thinks outside of the box’ to develop insights to share with municipal leaders, policy makers, journalists, and other opinion leaders. The Institute seeks to establish itself as the foremost expert in New York State on public entity workers’ compensation,” according to the Institutes website.

“The Institute is a nonprofit organization governed by a Board of Directors comprised of New York State municipal leaders, and counseled by an Advisory Board which includes workers’ comp and municipal experts both within New York State and in the national arena. The Institute is a research affiliate of PERMA,” according to the Institutes website.

“Prior to the reforms, employers and taxpayers in New York were paying the 10th highest premiums as a percentage of payrolls in the country. Despite these high costs, injured employees received one of the lowest maximum benefits in the country: $400 per week,” said Paul Jahn, Executive Director for the Workers’ Compensation Policy Institute. Jahn has nearly thirty years of experience in the workers’ compensation field.

“Since 2007, benefits have risen from $400 to $803.21 per week. Comparative costs have also risen from tenth highest to fifth highest in the nation,” continued Jahn.

For the Legislative Session of 2013 Jeff Bishop, Communications Director for Senator James Seward (R, C, I-Cayuga) said, “On the workers’ compensation issue there were few reforms included in the budget that will modernize and simplify the program that do not impact workers’ benefits. As far as standalone legislation, not a lot.”

In April, 2013 it was announced there would be a total of $1.2 billion in savings to employers that would occur as a result of the sweeping reforms to the state’s Workers’ Compensation and Unemployment Insurance systems that were included in the state budget.

“For too many years, businesses in New York struggled under the burdensome requirements and costs of our state’s unemployment insurance and workers’ compensation systems,” Governor Andrew M. Cuomo said. “Two years ago we pledged to reopen New York’s doors to business and transform our economic climate to make our state friendlier to job creators and reduce the unnecessary bureaucracy and burdens facing businesses. While there is still work to be done, the sweeping reforms to the workers’ comp and unemployment insurance system included in the 2013-2014 budget are a major victory for our state’s businesses large and small, and will save our job creators more than one billion dollars.”

“There will be $800 million in savings to businesses while increasing benefits to workers. Reforms to the workers’ compensation law will cut costs for employers, increase that minimum benefit to workers’ and overhaul the way the workers’ compensation system is managed,” said Rich Azzopardi, Press Secretary to Governor Cuomo. “The reforms will bring immediate savings to businesses by providing relief for self-insured businesses.”

“The state will create one method for collecting annual assessments from employers, thereby saving self-insured employers an estimated $500 million. This change will eliminate an overly complicated and bureaucratic system that was not only expensive for the state but also for employers. The new system will achieve administrative efficiencies and provide predictability to employers,” explained Rich Azzopardi.

“The savings as a result of this reform to self-insured businesses, by region, are: Capitol $18,748,413; Central New York $25,788,853; Finger Lakes $99,940,865; Hudson Valley $14,695,105; Long Island $1,528,248; Mohawk Valley $4, 672, 260; New York City $258,378,618; North Country $6, 959,474; Southern Tier $38,947,703; Western New York $30,340,462. The total savings is $500, 00, 000,” said Azzopardi.

“Previous law allowed payments in certain old and re-opened claims to be made out of a special fund known as the Fund for Reopened Cases. The Governor’s reforms closed this fund, eliminating the need for New York businesses to make payments into a fund that is unnecessary,” continued Azzopardi. “The Governor’s reforms include a series of measures to increase competiveness in the workers’ compensation marketplace that will help to drive down costs and provide relief to businesses.”

“These changes will reduce annual workers’ compensation assessments on New York businesses by $300 million. The savings, detailed by region are: Capital 4.4% or $13,132,845; Central New York 2.8% or $8,257,898; Finger Lakes 4.5% or $13,441,707; Hudson Valley 9.2% or $27,495,102; Long Island 12.5% or $37,371,306; Mohawk Valley 1.4% or $4,071,596; New York City 57.4% or $172, 109, 053; North Country 1.1% or $3, 244,915; Southern Tier 2.1% or $6,372,360; Western New York 4.8% or $14,503, 218; and the statewide total savings is 100% or $300,000,000,” said Rich Azzopardi.

“Providing a path to resolution for companies involved in the Group Self Insurance Trust crisis will provide relief for 10,000 businesses across New York State, who are currently saddled with an estimated $850 million in liabilities,” continued Rich Azzopardi. “The crisis resulted from deceptive business practices among several insurance entities that offered low-cost premiums to companies, yet failed to maintain adequate funds for workers’ comp benefits. When the fraud was discovered and it became clear the trusts were insolvent, thousands of New York’s businesses were socked with high and often unmanageable costs. The Governor’s reforms created a bonding program that will assist the self-insured employers resolve their liabilities. The Governor’s reforms assist the state’s most vulnerable injured workers, increasing the minimum benefit from $100 to $150.”

“In addition, during this summer the Workers’ Compensation Board began accepting injury reports electronically from insurers using a national standard. This will cut paper-handling costs, greatly improve system oversight and guarantee benefits are paid timely to injured workers. As a result of the Governor’s reforms, New York is reforming the electronic filing process and leveraging technology to implement an aggressive agenda of structural change in the workers’ compensation system,” said Azzopardi.

“We thank Governor Cuomo for including a 50% increase in the minimum workers’ compensation benefit in his Executive Budget and ensuring its enactment in the final agreement. This increase, which is the first adjustment in six years, will help workers who are injured on the job make ends meet. When coupled with the minimum wage increase and boost in the minimum unemployment insurance benefit, New York is making real strides in recognizing the hardships faced by low wage earners each day,” said Mario Cilento, President of the New York State AFL-CIO.

“New York consistently ranks first or second highest in the nation for the average total cost of a workers compensation insurance claim. In New York, a significant portion of the total claim cost is lost time— generally running 10 percent higher than the national average. New York also has a high percentage of lost time claims,” said New York Insurance Association President Ellen Melchionni.

 

“Wages are a key driver of the cost of workers compensation insurance, but the overall rate is multifaceted. Rising medical costs are a contributor. The fact that New York has the highest assessment in the country, five times the national average, is a huge factor,” said Melchionni. “Legislation was passed earlier this year to streamline the assessment, but only time will tell what impact it will have on the assessment rate. There are increased costs for regulatory compliance. Fraud also drives up the cost of insurance. New York had the second highest number of questionable workers compensation claims in the nation in 2012 and is on pace for an even greater number in 2013.”

“Governor Cuomo has acknowledged that additional work needs to be done related to workers compensation insurance. NYIA feels a thorough evaluation of cost drivers in the workers compensation system needs to occur, which would clearly highlight necessary modifications. In addition, in order to make the marketplace competitive and attract companies to write in New York, the state’s consistent artificial rate suppression needs to be addressed,” Melchionni said.

“In enacting the 2007 reforms, policymakers voiced hope and belief that their approach-increasing benefits while enacting reforms to trim costs-would both raise benefits and lower costs,” according to the Workers’ Compensation Institute’s report. “They were only half right.”

“The 2007 reforms accomplished their goal in making benefit levels in New York comparable to most other states. However, New York still does not have particularly high benefits levels-which means they are not sufficient to explain why New York’s premiums are the nation’s fifth highest,” the report said.

“The Institute’s study compares maximum benefit levels across the states. Mississippi has the lowest maximum benefit, $449.12, and Iowa has the highest at $1,543. While there is an enormous gulf between Mississippi and Iowa, a majority of jurisdictions, New York included, have established their maximum benefits in a relatively tight band ranging from just over $750 to just under $1,000 per week,” the study notes.

“When the workers’ compensation system in New York was reformed in 2007, the system worked poorly for both employers and employees,” said Paul Jahn, Executive Director for the Workers’ Compensation Policy Institute. “The state maximum benefit level had been unchanged since July 2002, and costs were driven by lifelong benefits paid to a relatively few claimants who qualified for Permanent Partial Disability (PPD) classification.”

“The 2007 reforms sought to restore balance to the workers’ compensation system. By linking the maximum weekly benefit to the state’s average weekly wage, New York gave injured workers more adequate temporary compensation,” explained Paul Jahn. “To offset this increase in employer costs, the reform legislation capped PPD awards at 525 weeks of benefits. The state also put medical treatment guidelines in place, and granted employers easier access to pharmaceutical and durable medical equipment networks that are designed to reduce costs. In enacting the 2007 reforms, policymakers voiced the hope and belief that their approach increasing benefits while enacting reforms to trim costs-would both raise benefits and lower costs. They were only half right.”

“Since 2007, New York’s benefits have risen from $400 to $803.21 per week. But comparative costs that were already high have risen even higher-from tenth highest to fifth highest in that nation,” continued Jahn.

“Iowa has the highest maximum benefit at $1,543; Mississippi has the lowest at $449.12. While there is an enormous gulf between Mississippi and Iowa, a majority of jurisdictions (including New York) have established their maximum benefits in a relatively tight band ranging from just over $750 to just under $1,000 per week,” said Jahn.

“What this analysis does not show is any clear, direct correlation between high benefit levels and high compensation coasts. Only Illinois is among both the five highest cost states and the five states with the highest benefit levels,” said Jahn. “Only Illinois, at fourth highest, has the same ranking for both costs and benefits. It should be noted that despite the lack of a direct correlation, the costliest states do tend to have higher than average benefit levels.” “In New York’s case, the disparity between benefit levels and costs is stark,” continued Jahn. “New York has the fifth highest cost to employers and pays employees the 29th highest maximum benefit level.”

“While each state has its own workers’ compensation statute, common practices regarding how employees are compensated have evolved in recent years. Virtually every state adjusts its maximum benefit rate annually. The vast majority of states tie the benefit rate to the state’s average weekly wage. Almost every state pays employees a temporary total disability rate equal to two thirds of his or her individual average weekly wage,” explained Jahn.

“New York was one of the last states to move to a system that required an annual adjustment in the maximum benefit. Before the 2007 reforms, New York claimants had not seen an increase in the maximum benefit since 1992. The reform sought to ensure that benefits would be adjusted annually. As a result, the maximum benefit was increased annually until it reached a level of two-thirds of New York’s average weekly wage as determined by the Department of Labor,” continued Jahn.

“By choosing a maximum benefit that is less than the state’s average weekly wage, New York avoided moving to one of the highest benefit levels in the country,” explained Paul Jahn. “Claimants with higher-than-average salaries receive less than two thirds of their average weekly wage in compensation. If New York elected to set its maximum benefit at the state’s average weekly wage, injured employees would receive a maximum of $1,204.82. This would represent the sixth highest maximum in the country.”

“The increase benefits built into New York’s 2007 reforms have occasionally been perceived as a contributor to New York’s overall high workers’ compensation costs. Certainly, payers of workers’ compensation developed a sense of ‘sticker shock’ as maximum benefit levels more than doubled between 2007 and 2013,” said Jahn.

“A close comparison of benefits among states undermines this perception. The 2007 reforms accomplished the goal of making New York benefits comparable to most other states,” continued Jahn. “However, New York does not have a particularly high benefit levels which do not account for its fifth highest in the nation premium level.”

“Several factors are probably driving the disparity between the cost benefits and the much heavier burden of overall system costs. Two of these issues will be the focus of future analysis by Workers’ Compensation Policy Institute:

In the last Oregon study, New York had the nation’s highest assessment tax by far, 20.2% of premium. This tax shrank slightly at the end of 2012 and it should go down much more due to reforms included in the state budget. This may impact New York’s standing in the next Oregon study.

Schedule Loss of Use (SLU) awards have increased dramatically in New York due to the higher benefit level. While this study did not systematically review how states reimburse employees who return to work for permanency, we did note that many states have moved away from permanency schedules, while others award schedules at less than the total rate. These awards are quite common in the New York system and the Institute intends to do a national study on how they are awarded,” concluded Paul Jahn.