The Business Council of New York State, Inc.
Testimony before the
New York State Insurance Department
on the
Proposed Workers' Compensation Rate Increase
New York State Insurance
Department
25 Beaver Street
5th Floor Hearing Room
New York, NY
The Business Council appreciates the opportunity to testify today on the
proposed rate filing by the New York Compensation Insurance Rating Board
(NYCIRB). The rating board proposed an increase to manual rates of 12.6% and
an increase to assessments of 3.9%. The Business Council and the employers
we represent are concerned with the potential return to double digit rate
shock. However, we are not here today to dispute the numbers or underlying
reasons why this increase is being proposed by NYCIRB. Instead, we are urging
that all parties quickly convene to consider further fundamental reform to
the workers' compensation system.
Before we speak to this reform - we want to briefly look at where New York
has been. As you know, in the early 1990s New York was in the midst of a workers'
comp crisis. Average workers' comp premiums for New York employers had more
than doubled - rising a full 165 percent - from 1987 through 1993. Workers'
comp premiums were costing employers nearly $5 billion a year - which was
twice what competitors were paying in other states. The high costs were making
it impossible for companies to expand in New York and worse the uncompetitive
rates were driving businesses and jobs out of the state. Fundamental reform
was needed and it was needed immediately.
Fortunately for the business community, Governor Pataki, after he was first
elected, vowed to tackle the failing comp system. The Governor and the Legislature
achieved this through the Workers' Comp Reform Act of 1996. In fact it took
the Governor holding up New York's 1996-97 budget to achieve it. These reforms
and the subsequent attention given to the comp system are responsible for
beginning to reverse the trend of historic rate increases and undo the damage
done to New York State employers during that time.
One of the crucial reforms to the system was the significant repeal of the
Dole v. Dow precedent. This precedent allowed employees to sue a manufacturer
for making a product and then allowed the manufacturer to sue the employer.
This kind of third party exposure raised liability for employers and made
insurance premiums sky rocket. This provision cost businesses over $300 million
per year. Its repeal reduced costs and made New York more competitive as New
York was the only state in the nation to have this sort of liability.
The legislation also enabled the Department of Health to create a regulatory
and administrative framework which allowed employers and insurers to utilize
Preferred Provider Organizations (PPOs) arrangements. Although still in its
infancy, this program has been given a favorable response by the business
community and has had a major impact on the cost and delivery of health care
services to injured workers. Currently more than 900,000 covered lives are
eligible to participate in the program and to receive comprehensive health
care for on-the-job injuries and illnesses. In the upcoming year we are looking
forward to working with the Department of Health and the Workers' Compensation
Board to make this program even more successful and beneficial to employers
and employees.
The 1996 Workers' Compensation Act also took critical steps to combat and
deter fraud within the workers' compensation system. Fraud is a statewide
problem that has the capability of driving up costs for all businesses. This
critical issue was addressed in the legislation. The new statute created a
Fraud Inspector General who has the subpoena power and authority to report
workers' comp fraud violations to the Attorney General, Insurance Fraud Bureau
or the local law enforcement agency. To date the Department has handled literally
thousands of complaints many which have been closed - leading to dozens of
arrests, hundreds of prosecution and law enforcement agency referrals and
over a million dollars returned to defrauded victims. The State Insurance
Fund estimates a $6 million savings due to anti-fraud efforts in 1998 alone.
We urge the administration to continue their efforts in the fight against
workers' comp fraud.
While we are grateful for the above mentioned reforms and for the many administrative
changes made by the Workers' Comp Board over the past 5 years - this cost
of doing business still remains well above the national average. Although
it is difficult to compare overall costs from one state to another, a Long
Island actuarial firm has compiled what may be the most authoritative numbers
for comparing the costs faced by one group - manufacturers. Actuarial and
Technical Solutions, Inc. calculates "net insurance costs" based on actual
manual rates in each state and adjusted for such factors as premium discounts
and administrative assessments that are not already factored into manual rates.
Its data shows NY's costs are 10th highest among 44 states. This
data shows that New York's comp costs are still 20% above the national average.
One large segment of our membership who has not seen a vast reduction in
comp costs are NY's biggest employers - the self insured companies. While
workers' comp rates have decreased - those are insurance rates which do not
affect self insured companies. We are often told by these companies that the
most beneficial reform to them is the ability to fully and finally settle
a case through Section 32 of the Workers' Comp Law. However, the self insureds
largest costs - the benefit costs (which include schedules, classifications
and determining degree of disability)- has not been changed.
To address their concerns and the concern of all of our members regarding
the continuing high cost of comp - The Business Council's workers' compensation
committee's top two priorities - reforms that we believe are essential in
achieving a financially strong compensation system - are a cap of seven years
on permanent partial disability benefits and the adoption of objective medical
guidelines which I would like to talk briefly about now.
The purpose of the workers compensation system is to provide replacement
income and medical benefits for employees injured on the job, until they regain
the ability to go back to work. If a worker is permanently unable to work,
it's fair for income and medical care to continue indefinitely. But the area
in between - permanent, partial disability- is filled with shades of gray.
And in recent years this type of compensation has become extremely costly
for New York employers. The greatest single portion of incurred losses - nearly
half of all costs- is paid as indemnity benefits to claimants with permanent
partial disabilities.
One reason for the growing cost is that, unlike the majority of other states,
New York allows workers with a partial disability to continue collecting benefits
forever. That means workers' compensation checks don't stop even when the
individual reaches the age he or she would normally leave work and live on
Social Security, pension income and savings. New York is only one of 9 states
that does not have a cap on PPD. These states have much lower costs per permanent
partial disability case than New York. Connecticut has a 520 week cap and
an average cost per case of nearly $21,000, Florida has a 525 week cap with
a average cost per case of nearly $30,000 North Carolina 300 week cap and
average case cost of $ 22,000 compared to New York with no cap and an average
cost per case of $48, 150.
The average cap on permanent partial disabilities nationwide is 450 weeks.
A cap is fair to employers; it makes the logical assumption that even workers
who could not return to their old job because of an injury would, over a period
of years, be able to undergo training or develop expertise in another type
of job. It is important to note again that we are talking about partial disabilities
- some of which are seriously disabling, but most of which are not. The idea
of changing the law is to treat only those injuries that are seriously disabling
as such.
In addition to placing a cap on permanent partial disabilities, The Business
Council seeks the adoption of objective medical guidelines which will provide
a more uniform and efficient approach to determining the degree of impairment
in these cases. Thirty-nine other states use objective medical guidelines
when measuring physical disability. Objective guidelines will: allow employers,
carriers and medical practitioners handling workers' compensation cases a
chance to be reading off the same page; reduce the use of lawsuits, thereby
producing faster settlement; and save hundreds of millions of dollars that
now go to legal battles and often questionable payments.
As well as being a top concern with The Business Council, the Greater Buffalo
Niagara Partnership, the Rochester Chamber of Commerce and the Syracuse Metropolitan
Development Association have recently joined forces to form the Advance Upstate
New York coalition. This coalition, working with The Business Council, is
committed to increasing economic revitalization of the Upstate Region. This
coalition has pledged to use their collective resources to help bring about
further changes to the comp system, specifically the two cited above.
The Governor has once again taken the lead towards continuing to reform the
comp system and further drive costs down. We were extremely pleased that he
has proposed legislation which would adopt AMA guidelines to measure physical
disability for permanent partial disabilities and cap PPD benefits at 700
weeks. The Governor's legislation and leadership will play a key role in setting
the agenda for continued fundamental reform of workers' compensation in the
upcoming years.
Again, thank you for giving us the opportunity to testify today. I would
be happy to answer any questions.
