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July 5, 2005

Council: Proposed increase in workers' comp costs highlights, again, the need to enact reforms to cut costs

New York’s workers’ compensation costs are already too high, and a proposal to significantly increase that burden highlights again the importance of enacting cost-cutting reforms to address the problem, The Business Council said in testimony submitted to the state Insurance Dept.

“We know why our costs today are high, and we know what reforms will begin to correct the problem,” the Council’s testimony said. “We know that we can give increase benefits that New York offers to injured workers and, with the right reforms, still reduce employers costs.

“And we know it’s past time to implement these reforms.”

New York’s workers’ compensation costs are 72 percent above the national average on a costs- per-case basis, the testimony said, citing statistics from the independent National Council on Compensation Insurance (NCCI). This above-average cost imposed on employers is due almost exclusively to cases for which open-ended benefits are given to workers without specific statutory schedules.

“For these cases, New York offers lifetime benefits. No wonder these cases account for 14 percent of claims, but more than 77 percent of all compensation costs,” the testimony noted.

“Albany has known for years what reforms are needed to reduce workers’ compensation costs,” the testimony continued. “After all, these same reforms have been enacted, successfully, in other states. And, year in and year out, some variation on these reforms is proposed in Albany.”

The testimony noted that Governor Pataki suggested such reforms at the Council’s Small Business Day in 2004, and that Assemblyman Robin Schimminger (D-Erie County) has also advanced a reform proposal. The reforms that they have proposed include a range of ideas, such as:

“Broad reforms would make possible both lower costs and higher benefits,” the testimony said. “New York is a relatively low-benefit state despite these high costs, and a reform package that both reduces employers costs and increases workers’ benefits is within reach.”

This year, the state’s Compensation Insurance Rating Board (CIRB) has proposed increasing the state’s workers’ compensation premiums by an average of 16.1 percent and has said a key surcharge added to workers’ comp premiums will increase by at least 8.7 percent. from the current level of 16.1 percent to 17.5 percent, if the requested premium increase is granted.

CIRB has also said it will increase in assessments, the surcharge added to premiums for all employers. CIRB has decreed that surcharges will increase even more if its proposed rate increase is rejected, the testimony noted. According to one estimate, that increase, if the requested premium increase is not granted, could drive the assessment rate above 20 percent.

Assessments, which are a key part of the burden of workers’ compensation costs in New York State, support the operational expenses of New York’s Workers’ Compensation Board (WCB) and various special funds supported by New York’s workers’ comp system.

The Council urged the state Insurance Department to investigate the factors driving increases in assessments with the goal of both slowing growth in assessments and, eventually, reducing them.

The testimony cited the Council’s 2004 survey of employers that showed that workers’ comp costs are one of the most damaging burdens holding back New York in its pursuit of prosperity.

Survey respondents overwhelmingly said their workers’ compensation costs have increased in the last five years, and that these costs limit employers’ opportunities to grow, hire new workers, and sustain other business investments.

In fact, more than a third of respondents to the survey said New York’s workers’ compensation costs are encouraging them to consider re-locating their business out of state. And about one in five respondents said these costs are forcing their businesses to either leave the state or expand elsewhere.

“Change is within reach. We must not wait any longer to embrace that change,” the testimony concluded.