BUSINESS 5YRS of W O R K E R S COMPENSATION REFORM S T I L L A W O R K I N P R O G R E S S A ROCHESTER BUSINESS ALLIANCE REPORT
Essential reforms are failing to achieve their promise About 100 years ago, New York State was a pioneer in developing workers compensation a system for providing payments to people who are injured on the job that is fast, reliable, and fair to both workers and their employers. By the beginning of this century, nearly everyone agreed that New York s system was broken. Weekly payments to workers were low, premium costs for employers were high, and the process for settling claims was slow and cumbersome. In 2007, New York State enacted reforms to fix workers compensation. Passed by the legislature with bipartisan support, the reforms reflected a grand compromise that required employers, workers, and state government to accept major changes. Employers would accept increased weekly payments to injured workers, and higher fees for physicians who treat them. Unions that represent many affected workers would accept limitations on certain benefits, along with evidence-based medical treatment guidelines. The Workers Compensation Board would improve administration of the program to speed settlements and reduce non-medical costs. The reforms promised to create a new, more efficient workers compensation system that would function better for everyone, and lower overall costs for employers. Five years later, the job is not done In 2012, it s clear that employers have lived up to their side of the bargain. The maximum weekly benefit to workers has nearly doubled, and employer disputes of worker claims have declined by more than 60 percent. But the Workers Compensation Board has been slow to implement the other reforms, some of which still aren t in place. As a result, expected cost reductions have been fleeting or nonexistent. In the first two years, the state lowered the base premium on which insurance rates are based meaning some employers may have seen a price break, depending on the additional charges from their carriers. But overall, since 2006, average medical claim costs are up 11 percent, and indemnity costs (compensation intended to replace lost wages) have risen 20 percent. What goes up... keeps going up $800 Weekly Benefit to Workers $47 Indemnity Costs to Employers Thousands of Dollars $700 $45 $600 $43 $500 $41 $400 $39 2006 2007 2008 2009 2010 2011 2012 2006 2007 2008 2009 2010 New York s traditionally low worker benefits have nearly doubled since 2007. Now indexed to the statewide average weekly wage, they continue to rise each year. Promised cost savings from new medical treatment guidelines, time limits on certain benefits, and administrative efficiencies have failed to materialize, raising employer indemnity payments by 20 percent from 2006 2010.
Self-insured employers get no break The cost burden is especially painful for large employers who pay workers compensation claims directly. Instead of setting a base premium level, the state requires these self-insured employers to maintain security deposits to cover their total liability for workers compensation claims. Many of these self-insured employers have seen their deposit requirements skyrocket, contrary to the promise of reform. For one private-sector employer with multiple locations in the state, security deposits have risen 72 percent over the last five years an increase of more than $60 million. For another large nonprofit employer in the Rochester region, they have increased 30 percent. An extra burden highest-in-the-nation taxes Along with their insurance premiums or direct payments to workers, employers pay the state an additional assessment that s ranged from 18 to 20 percent over the last three years more than double the tax charged by any other state. These fast-rising assessments show that the reforms are not working to reduce the administrative or claims costs paid by employers. 1 98 % Increase in maximum weekly benefit paid to workers from $400 in 2007 to $792 in 2012 Increase indemnity payments from 2006 2010, showing that reforms have failed to reduce employer costs. The state s rank for highest premium costs in 2012. We ranked 19th in 2008, soon after the reforms first took effect, and ranked 13th in 2010. 2 X How New York State s tax on workers comp premiums compares to other states a 19 percent rate in 2012 compared to a national average of 3.8 percent. The WCB: Failing to track progress In 2008 and 2009, the Workers Compensation Board and state insurance department produced comprehensive reports on program costs and worker benefits, with a pledge to continue assessing the impact of reforms. No reports have been issued since, even though providing this information was a central promise of state government in the reform discussions. The 2010 12 progress reports were never made Number of workdays an employee must miss to qualify for scheduled loss benefits, which are based on outdated medical guidelines. For example, a hip replacement is considered to result in a permanent 60 percent loss of the use of a leg, even though many people with hip replacements today suffer no lasting impairment. 1. Oregon Workers Compensation Premium Rate Ranking, 2008, 2010 and 2012. This commonly cited Oregon study is one of the few sources of comparative national data available on workers compensation costs. 2. Compensation Insurance Rating Board estimates.
A Well-Intended Effort in Urgent Need of More Attention In 1914, three years after a tragic fire at the Triangle Shirtwaist Factory in New York City, our state passed one of the first workers compensation laws in the country. It was designed to replace lawsuits as the way to settle claims related to workplace injuries or deaths. In the decades since, all states have adopted workers compensation laws and though they vary widely, all reflect a basic compromise between the interests of workers and employers. Workers give up the right to sue their employers over workplace injuries and occupational diseases. Employers buy insurance that pays for the medical care of injured workers, and provides cash benefits to make up for lost wages. Both participate in a no-fault system, which means that neither employee carelessness nor employer negligence affects the way a case is settled. Where are the $1 billion savings? By 2007, the New York workers compensation system was widely known, and criticized, for paying low weekly benefits to workers while demanding high insurance costs from employers. Under former Gov. Eliot Spitzer, the state passed a reform law that promised to generate $1 billion in savings enough to fund a significant increase in the maximum weekly benefit, and to simultaneously reduce premiums. The projected savings were based primarily on three changes to the system: Adopting evidence-based medical guidelines, better matching payments to modern medical treatment costs and outcomes. Eliminating lifetime payments to workers with partial disabilities. Making process improvements to lower administrative costs.
Weekly payments were increased soon after the law was passed, and they continue to rise with the state s average weekly wage. But none of the major cost-saving changes described above have been fully implemented. As a result, the promise of lower costs to employers has been broken. PPD: Permanent Partial Disability, Or Persistent Program Delays? Changes to the way permanent partial disability (PPD) cases are handled have the biggest potential to reduce costs. The PPD program compensates people with a job-related injury that impairs some of their work abilities, but allows them to remain employed. Previously, New York s PPD system recognized three categories of partial disability, with lifetime payments for the most severe cases. Under the new system, there are 12 categories, with a maximum benefit of 10 years. But these changes are being implemented very slowly. It took three years for a state advisory group to propose the new categories. Another two years passed before the new regulations took effect (on January 1, 2012). And during that time, the process of settling PPD cases has gotten slower. In 2006, it took an average of about five years from accident to PPD classification; in 2011, it took six years. Based on these delays, the reforms won t result in significant cost reductions until the next decade, years later than envisioned when the new law was passed. Scheduled losses Pay a lot more, Even if you don t Miss work Right Knee /Hip Strain: Actual 2009 Payment: $172,800 2012 Payment $228,096 Total Pre-Reform Benefit: $258,640 Total Benefit Today: $398,060 Rotator cuff: Actual 2005 Payment: $46,800 2012 Payment: $92,664 Carpal Tunnel: Actual 2006 Payment: $39,040 This illustration is based on a real-life example of one worker who received scheduled loss benefits, a type of indemnity payment meant to compensate workers for specified permanent impairments, even if they don t miss work and continue receiving full wages. (Medical payments are made separately.) Payments for scheduled loss have risen dramatically since 2007. But the medical guidelines on which they re based haven t been updated since 1996 despite medical advancements that speed recovery times and result in better outcomes. In this example, the employee continues working full time, with no limitations. These injuries occurred from 2005 to 2009; the graphic shows what the payments would be in 2012. 2012 Payment $77,300
Fully Executing the 2007 Reforms Will be Good For Workers And Keep New York Open For Business People who become injured or sick because of their job deserve compensation. They need to pay medical bills and other expenses related to their condition, including lost time at work. That is why it s important to complete the 2007 reforms to our state s workers compensation law. An effective system can provide fair compensation more quickly, at lower costs, than relying on the courts to settle worker claims individually. This benefits both workers and their employers. The good news is that the hard work of reform has been done. The problem isn t that the grand compromise embodied in the 2007 reforms won t work. It isn t that employers accuse workers of abusing the system. The issue is that the promised reforms aren t working yet, because they weren t fully implemented under our two previous governors. achieved. In RBA surveys, it ranks as the number three concern of employers, after health care costs and reducing unfunded mandates. Making the system work better, in our view, doesn t require better legislation just better execution of the reforms already in place. To borrow the simple strategy of Wegmans, one of our region s great employers, we need to focus and finish. How to Make Workers Comp Reform Work Track and report progress. Require the Workers Compensation Board to resume detailed annual reports with metrics on agency performance, program implementation and overall costs. There will be no argument over the impact of reform if the state-assigned referee is keeping score. Appoint a Workers Comp Czar. Engage an expert with reform experience from other states to assess New York s system. As when Gov. Cuomo hired Jason Helgerson from Wisconsin to be Medicaid czar, the fresh perspective of a knowledgeable outsider can accelerate progress here. THE WRONG DIRECTION Number It s time to focus and finish Under Gov. Andrew Cuomo, the state has achieved great progress in policies that promote economic growth. On-time state budgets that control spending, a property tax cap, Medicaid reforms, and new approaches to economic development all have improved the climate for attracting and growing employers. Unfortunately, workers compensation stands out as an issue where little progress has been Number Number 5 IN 2012 In 2008, New York State ranked 19th in the nation for workers compensation premiums. New York rose to #13 in 2010, and the trend is getting worse: In 2012, New York ranked #5 in the nation for highest workers compensation premium costs.
Reform the approach to indexing benefits. Stop indexing benefits to the statewide average weekly wage, or adopt a regional approach. Higher downstate salaries unfairly drive up costs for upstate employers, and using the average lowers benefits for downstate workers. Use updated medical standards to calculate scheduled loss awards. Bring scheduled loss payments in line with medical advancements that have improved recovery times and health outcomes. Reflecting the fact that many workers lose little time from work for the conditions covered by scheduled loss, return to a practice of using half the benefit rate in the calculation of payments a partial benefit for partial impairment. Reduce New York s highest in the nation assessments. Through accelerating settlements of Second Injury Fund cases or reducing state administrative expenses, the state must find a way to bring premium taxes more in line with the national level. Fix the handling of permanent partial disability cases. Instead of an average six-year wait, New York should assume that maximum medical improvement has been reached within six months to two years. To make the new PPD classification system effective, the Workers Compensation Board must provide more training and guidance to the doctors and administrative law judges responsible for implementing it. Reject legislative rollbacks. Some legislators have proposed changing the compromise on which the reforms were based. Proposals such as exempting pre-2007 claimants from the Medical Treatment Guidelines or creating loopholes in the pharmaceutical fee schedule should be defeated. xecution is the great unaddressed issue in the business world today. Its absence is the single biggest obstacle to success and the cause of most of the disappointments that are mistakenly attributed to other causes. From Execution: The Discipline for Getting Things Done by Larry Bossidy and Ram Charan
This publication is based on a report by the Center for Governmental Research, Workers Compensation in NYS: Did 2007 reforms make a difference? Read the full report at: www.rochesterbusinessalliance.com As the Rochester region s chamber of commerce, the Rochester Business Alliance informs and advocates for employers in the nine-county Rochester region. The Rochester Business Alliance provides networking opportunities and delivers important business and human resource-related services to help employers grow. Rochester Business Alliance, October 2012