Changes in Workers’ Comp Has Enough Been Done?

  • By John Flanzer

Like the face of a withered old bulldog, it takes strong maternal instincts to arouse affection for New York State’s Workers’ Compensation Insurance program. Insurance carriers in increasing numbers avoid it like a plague. Many businesses see it as a post-er child for the difficulties of doing business in the State. Labor complains about low benefits for injured workers. All clamor for change, but there is concern the acrimonious debate over the state budget will leave little time for dramatic legislation affecting both Workers’ Compensation and related labor laws.

Meanwhile, the State itself points to a dramatically streamlined claims process since the 1996 reforms under Governor George Pataki. Rates in many instances are lower than they were in the mid 1990s. The improvements are applauded. But no one is happy.

Workers’ Compensation laws in New York State go back to pioneering 1914 legislation. Today it makes sure that workers hurt on the job receive medical and cash benefits to compensate them for serious, disabling injury and pays them a portion of their salary as they recuperate. The Workers’ Compensation Board keeps busy administering a quasi-judicial process which resolved an astounding 336,132 claims in 2002 alone.

The State sets the insurance rates. Employers are required to pay them according to 544 job classifications, each calibrated by how susceptible the worker — from accountant to zoo-keeper — is to injury. For a white collar operation, rates can amount to less than a penny per $100 of payroll. If there is heavy lifting or work on a scaffold, the risk goes up and so does the cost. Building trades and manufacturers are especially hard hit. Coverage for a mason costs nearly $18 per $100 of payroll; close to $20 for a steel erector. A roofing contractor can pay up to $30 per $100.

These days, businesses have less choice when it comes to buying the insurance. After a wave of consolidation in the industry, fewer commercial carriers are willing to underwrite in New York State. Some firms may self-insure, pooling resources with like com-panies but those funds are shrinking in number. As a last resort, higher risk businesses, buy from the State’s own insurance fund which tags on an assessment fee — this year 13 percent — that pushes the State’s declared rates even higher.

“I’ve been in the business for 30 years and I’ve never seen it like this,” Marcia Bierce of Rose and Kiernan’s Plattsburgh office laments. “It isn’t pretty, especially for contractors, construction-related industries. It is also tightening up for manufacturers.”

Insurance brokers all tell the same story. When the stock market rode high in the 1990s, national insurance companies got fat on their investment portfolios. “It was a buyer’s market,” recalls Northern Insuring’s Deena McCullough, “and they competed for business without a lot of thought.” With the stock market down and the nightmarish specter of 9-11 hanging over their heads, insurers are now trying to make money by ‘smarter’ underwriting. As a result, Workers’ Compensation insurance of “higher risk firms,” says Curtis Latremore of Latremore’s Insurance, “scares people and the higher rates have the effect of adding costs to bottom lines.”

Jacking up costs for the construction industry in both Workers’ Compensation and general liability and property insurance are two controversial sections of New York State’s labor laws – Section 240 and 241. Above and beyond the no-fault Workers’ Comp system, a contractor or owner is liable for virtually any gravity-related injury suffered by a worker at a job site. Neglect on the part of the worker can not be used to determine fault. And it can implicate anyone involved in the job site. There is no liability standard like it in the country.

Because of the law, Jeffords Steel and Engineering Company took a big hit in 1998. All the company’s trucks did, its president Larry Jeffords recalls, was deliver steel. “We never got on the job site. We paid a claim of $1 million because a lawyer found a loophole.” The liability then went down the chain of subcontractors like a collapsing deck of cards. “Sue the guy that is at fault,” Larry says. “We should never have been sued.”

“Workers Compensation issues have staggering implications for the construction industry,” says North Country Assemblyman Chris Ortloff who argues that “people could find themselves priced out of the housing market” because of the attendant higher insur-ance costs.

Clark M. Forester of the Keeseville insurance agency bearing his name says the situation is dire. “For larger contractors, the biggest issue is the off-the-ground injury. Smaller contractors,” he says, “have trouble affording the $15 to $20 per $100 of payroll rate.”

John Doyle, a small Essex County builder with four carpenters on his payroll, spends $15,000 annually on Workers’ Compensa-tion insurance. “It eliminates profit and all I get is a salary out of my own business,” he complains. Recognizing the trend, Marcia Bierce fears, “We will end up with uninsured contractors.”

Higher overall costs are reflected in our taxes. Chazy Town Supervisor George Deno, for one, says his Highway Department faces a jump from $900 to $1400 a month on Workers’ Compensation costs. Andrea LaBarge of LaBarge Insurance in Mooers sees Volunteer Fire Departments facing ten to 12 percent increases.

How high are the State’s Workers Compensation rates? The Business Council of New York State reports that in 1995 rates were 56 percent above the national average. In 2000, they went down to 20 percent above the norm. Now they are up to the 30 percent level and among the highest in the nation.

But it is not just the costs that concerns business. One Plattsburgh manufacturing executive, who declined to be identified, says Workers’ Compensation makes it “disadvantageous for new businesses to come into New York State. There are more reviews, more hearings and a greater likelihood of rulings favoring employees.”

Kent Eldridge, Associate Director of Human Resources at Wyeth Research in Chazy, says, “Workers’ Compensation is the most frustrating thing we are involved with at times. The tendency here is that doctors are very patient oriented. They bend over back-wards and often are not objective when it comes to clearing an injured worker to return to work. “I don’t want the system too em-ployer friendly,” Eldridge adds. “I’m looking for more balance.”

National observers are tough on New York State. A 2003 report card from the Work Loss Date Institute of Corpus Christi, Texas, awarded New York and five other states an ‘F’. The study looked specifically at how long workers were away from the job after an injury covered by Workers’ Compensation. That is a key factor, the study says, in identifying what contributes to the higher cost of insurance.

While praising improvements in the administration of the State’s Workers’ Compensation system, a 2002 study from the Workers Compensation Research Institute of Cambridge, Massachusetts affirmed that New York, when compared to other states, remains unu-sually litigious, hard to navigate and expensive. The study also cites New York State for a maximum disability payment that is the lowest in the nation – $400 a week. Benefit levels have not changed since 1992. And given the scale by which the benefits are de-termined, Art Wilcox of the State’s AFL-CIO says, “Virtually no one is getting the $400.” He calls New York State’s Workers’ Compensation system “a complete mess” and agrees with business that there is a need for change. He attacks the high insurance costs by arguing that “good employers should not be forced to pick up the costs of bad ones.” Insurance carriers, he says, ought to be rated on how effectively they handle claims. And the same way they elect their health insurance, employees – not the owners — ought to be the ones choosing their Workers’ Compensation insurance. Unfortunately he believes the budget debate will consume most of Albany’s energy this session and thinks change on this front is unlikely.

On the other side of the fence, Kerry Kirwan, who specializes in Workers’ Compensation issues at the Business Council, does not rule out a major legislative initiative this spring. The Business Council advocates a “fundamental overhaul” of the system including tort reform and higher weekly benefits, but would cap partial disability payments to injured workers at 500 weeks. “In large part,” she says while pointing to 37 states that have such ceilings, “New York’s high costs can be attributed to the partial disability payments that can be paid out over a lifetime.”

Given the uncertain economy and the challenging regulatory environment, no one expects the insurance industry on its own to enthusiastically jump back into the Workers’ Compensation market. The picture, Deena McCullough says, shows no sign of im-proving. “It’s getting uglier.”

Curtis Latremore sees no relief for higher risk industries. “The key to bringing rates down,” he declares, “is a more vigorous, competitive insurance market in the State. Insurance companies are staying out of New York.” Curtis wants to level the playing field with other states. That means Albany would have to address its Workers’ Compensation law and deal with a minefield of special interests. And that may be the most high risk job of all.

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