When the workers compensation system in New York was reformed in 2007, the system worked poorly for both employers and employees.

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1 New York's workers' comp: High benefits, higher costs New York s workers' comp benefits have risen to enter the mainstream but they cannot explain why employers costs remain so high By Paul Jahn Executive summary When the workers compensation system in New York was reformed in 2007, the system worked poorly for both employers and employees. Employers and taxpayers in New York were paying the 10 th highest premiums as a percentage of payrolls in the country 1. Despite these high costs, injured employees received one of the lowest maximum benefits in the country: $400 per week. The state maximum benefit level had been unchanged since July 2002, 2 and costs were driven by lifelong benefits paid to a relatively few claimants who qualified for Permanent Partial Disability (PPD) classifications. 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. 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. 1 Information Division: Oregon Department of Consumer and Business Services: Oregon Workers Compensation Premium Ranking, Calendar Year

2 Since 2007, New York's benefits have risen from $400 to $ per week. But comparative costs that were already high have risen even higher from 10 th - highest to fifth-highest in the nation. 3 Compensation rates This chart illustrates the range of maximum benefits among the states. Iowa has the highest maximum benefit at $1,543; Mississippi has the lowest at $ 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. What this analysis does not show is any clear, direct correlation beween high benefit levels and high compensation costs. Only Illinois is among both the five highest cost states and the five states with the highest benefit levels. 3 Dotter and Manley: 2012 Oregon Workers Compensation Premium Ranking Summary.

3 Rank Highest benefits by state Benefits Rank Highest costs by state* Rank % of State AWW reimbursed** 1 Iowa $1, Alaska 1 Iowa Washington, New $1, Connecticut 2 DC 2 2 Hampshire New $1, California 3 Hampshire 3 3 Vermont 4 Illinois $1, Illinois 4 Illinois 5 Washington $1, New York 5 Oregon 6 Massachusetts $1, Oklahoma 6 Washington 7 Connecticut $1, New Jersey 7 Alaska 8 Vermont $1, Montana 8 North Carolina New Oregon $1, Hampshire 9 Missouri 10 Alaska $1, Maine 10 Massachusetts 11 California $1, Pennsylvania 11 Connecticut 12 Rhode Island $ Wisconsin 12 California 13 Maryland $ Washington 13 Rhode Island 14 Virginia $ Vermont 14 Maryland 15 Pennsylvania $ Louisiana 15 Virginia 16 Tennessee $ South Carolina 16 Pennsylvania 17 North Carolina $ Minnesota 17 Wyoming 18 Wisconsin $ Tennessee 18 Ohio 19 Colorado $ Idaho 19 Texas 20 Missouri $ Rhode Island 20 Florida 21 Minnesota $ Alabama 21 Nevada 22 Wyoming $ Kentucky 22 West Virginia 23 Ohio $ South Dakota 23 Alabama 24 New Jersey $ Iowa 24 Utah 25 North Dakota $ North Carolina 25 Oklahoma 26 Texas $ Georgia 26 Hawaii 27 Florida $ New Mexico 27 New Mexico 28 Nevada $ Ohio 28 Kentucky 29 New York $ Florida 29 South Carolina 30 Michigan $ Delaware 30 Maine 31 West Virginia $ Wyoming 31 Nebraska 32 Alabama $ Michigan 32 Montana 33 Utah $ Nebraska 33 South Dakota 34 Oklahoma $ Maryland 34 Colorado

4 35 Hawaii $ Hawaii 35 Michigan 36 New Mexico $ Missouri 36 Idaho 37 Kentucky $ Arizona 37 Arkansas 38 South Carolina $ Texas 38 New Jersey 39 Maine $ Oregon 39 North Dakota 40 Nebraska $ West Virginia 40 Louisiana 41 Montana $ Kansas 41 Kansas 42 South Dakota $ Mississippi 42 Wisconsin 43 Delaware $ Colorado 43 New York 44 Arizona $ Massachusetts 44 Delaware 45 Idaho $ Utah 45 Arizona 46 Louisiana $ Nevada 46 Minnesota 47 Arkansas $ D.C. 47 D.C. 48 Indiana $ Virginia 48 Tennessee 49 Kansas $ Arkansas 49 Indiana 50 Georgia $ Indiana 50 Georgia 51 Mississippi $ North Dakota 51 Mississippi * 2012 Oregon Workers Compensation Premium Ranking Summary ** AWW = average weekly wage. 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. New York has the fifth highest cost to employers and pays employees the 29 th highest maximum benefit level.

5 Percentage of state average weekly wage compensation Maximum rate as a percentage of state average weekly wage Other method 10% Above 100% 17% Below 100% 10% At 100% 63% 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. Most states fix their maximum benefit at 100 percent of 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. 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 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. 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. 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

6 receive a maximum of $1, This would represent the sixth highest maximum in the country. Conclusion The increased 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 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'. However, New York does not have 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 the Workers Compensation Policy Institute: In the last Oregon study, New York had the nation's highest assessment tax by far, 20.2% of premium. i This tax shrank slightly at the end of 2012 and is 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. i Jahn, Stickle, and Morris: Workers Comp Assessments: The Hidden Tax Confronting Employers and Taxpayers