May 23, 2000
Council hails proposed decline in workers' comp premiums, will track another key cost set to go up
The Business Council is pleased that employers' workers' compensation premiums may go down this year, and will continue to monitor the second key component of comp costs, which appears poised to increase, said Kerry Kirwan, The Council's legislative analyst specializing in workers' compensation issues.
Because the new rates would likely keep New York's workers' compensation costs more than 20 percent above the national average, The Council will also continue to urge more workers' compensation reforms, she added.
Earlier this month, the state's Compensation Insurance Rating Board (CIRB) recommended a decrease in workers' comp premiums of 2.5 percent and an increase in "administrative assessments" of 2.6 percent. If enacted as proposed, the changes would leave average overall workers' compensation costs largely unchanged from last year, Kirwan said.
"A decrease in premiums would be welcome news, especially after the initial proposals last year called for a double-digit premium increase," Kirwan said.
"We are concerned about the proposal to increase assessments by more than 20 percent, and we will continue to evaluate the reasons for these steadily increasing cost of workers' compensation," she added.
Kirwan also noted that much of the money collected from administrative assessments supports special funds that are currently being examined by a task force created by Governor George Pataki. That task force includes one representative of The Business Council, Patrick McLaughlin, training manager for United Parcel Service in upstate New York.
"The continuing struggle to contain or reduce comp costs reinforces the importance of this committee," Kirwan said.
Workers' compensation is a system of employer-funded "no fault" insurance designed to ensure that workers injured on the job receive both medical assistance and weekly support payments, generally until they can return to work. Established in 1914, it was viewed as a historic agreement between labor and management designed to address the needs of the workforce. Under this agreement, employers assumed all liability, regardless of fault, for all job-related injuries. But the law also set monetary limits on employers' liability. Workers received prompt, specific and adequate payment for injuries, but relinquished the right to sue for more.
How total workers' comp costs are determined: Employers' workers' compensation costs reflect both premiums and assessments.
Premiums are rates paid by employers for their employees' workers' comp insurance. Employers pay different rates for different jobs. New York State sets rates for nearly 800 different job classifications, which differ based on the danger associated with different kinds of work. Rates for these job classifications are called "manual rates."
The premiums employers actual pay are based on the total of the manual rates for all jobs on the payroll, modified by the employers "experience" that is, its history of claims in the workers' compensation system. Employers with "positive experience" that is, a relatively safe workplace record and thus relatively few claims generally pay less.
After an employer's total premium is calculated in this way, an additional percentage, called an administrative assessment, is tacked onto the bill. Money collected from assessments covers the administrative costs of the Workers' Compensation Board (WCB) and ensure that several special funds administered by the board are adequately funded.
The current assessment rate is 13.6 percent; the proposed new rate of 16.2 percent represents an increase of more than 20 percent, Kirwan noted. Last year's assessment rate was 44.7 percent higher than the previous year's assessment rate.
When rates and assessments are set: CIRB recommends both rates each May, subject to review by the state Insurance Department. The Insurance Department generally announces the final premium change in July. Both costs take effect each year in October.
How employers' secure workers' comp: Employers may secure workers' compensation for their employees in four ways. They can buy it from a private carrier or the state Insurance Fund. Larger employers can self-insure if they are able to document to the state Insurance Department that they have sufficient resources to do that. And employers can band together with similar employers to pool resources and insure themselves as a group. In New York, approximately 50 percent of workers' compensation is provided by private carriers; 25 percent is provided by the state Insurance Fund; and 25 percent is provided by self-insurers, including "group insurance," which is self-insurance by groups of similar employers that band together for this purpose.
Workers' comp costs as a competitive disadvantage for New York: In New York State, workers' compensation costs have long been significantly above average. For several decades, workers' compensation costs have been considered a major competitive disadvantage for New York State.
Before the reforms of 1996, these costs were some 56 percent above average. By 2000, four years after the reforms, these costs had declined significantly. However, New York's workers' comp costs remained about 20 percent above the national average, 10th highest among 44 states evaluated in a recent measurement. New York's workers' compensation costs still exceed costs in competing states such as Pennsylvania (1 percent above the national average), Connecticut (5 percent above average), and New Jersey (11 percent below average).
Recent reforms, and recommended new reforms: In 1996, New York State lawmakers enacted historic reforms to workers' compensation that were championed by Governor George Pataki and strongly advocated by The Business Council. These reforms were designed to rein in New York's workers' compensation costs, which then were some 56 percent above the national average, while preserving fundamental protections for workers.
The 1996 reforms limited the ability of third parties to sue New York State employers, mandated safety programs for some employers based on safety records, created new anti-fraud protections, and helped reduce costly delays in the workers' comp system.
In 2000, The Business Council has made further workers' comp reform one of its top legislative priorities. New York business community believes that two more reforms could significantly reduce New York's comp costs. The first of these is a cap on permanent partial disability benefits; the second is adoption of objective medical guidelines to determine the degree of disability in these cases. Both of these reforms have already been enacted in most other states.
Cases of permanent partial disability are significant because they account for more than half of New York's workers' compensation claims costs. Only nine states have no cap on benefits in permanent partial disability cases. In three states with caps Connecticut, Florida, and North Carolinaapproximate costs per case ($21,000, $30,000, and $22,000, respectively) are significantly lower than New York's costs per case ($48,150). Thirty-nine other states already use objective medical guidelines to ensure consistent benefits for specific injuries.