November 18, 2005

Fixing Comp In New York

Workers comp reform is on the table again in New York. The governor's press release outlines a comprehensive package of changes that is supposed to reduce overall costs by 25 per cent, even as certain benefits are increased. New York is currently in big trouble, ranked among the four most expensive states, so reform is certainly in order. But is the reform addressing the fundamental problems in the Granite State?

In Governor Pataki's press release, he announces a 25% increase in the maximum weekly indemnity benefit - from a ridiculous $400 to an only slightly less ridiculous $500. It is indeed ironic that Massachusetts - where businesses pay far less for workers comp - offers a maximum average weekly wage of nearly $900. You have to wonder where all the money is going in New York.

Friction in the System
When you look at any state system for comp, one of the most telling factors is the built in friction - the inherent adversarial nature of the state's approach. The higher the friction, the higher the costs. A key indicator of friction is the involvement of attorneys. It's no coincidence that the states with the highest costs tend to have the most attorney involvement.

What makes New York unique among states is the bureaucratic oversight of each and every claim. While most states offer extensive latitude for insurers to make changes in the status of a claim, in New York a hearing is required to make any changes. The system, designed by people who emerged from the crucible of labor-management strife, places the state in the position of micro managing every claim. The last time I checked the numbers, New York was holding over a half million such hearings each year.

The Key to Reform
So among all the items in the governor's press release, one really caught my attention: "the reforms would establish a pilot program to encourage the voluntary delivery of compensation and medical benefits to injured workers without intervention by the Board, but subject to the Board's supervision." In other words, under this pilot program, carriers would be able to function as they do in every other non-monopolistic state. They will make decisions, presumably within the rules. If claimants don't like the decisions, they can appeal. In giving up the control of every decision in every claim, the New York system should begin to run more smoothly, more efficiently, and with less friction.

There are other elements in the proposed reforms, including an expansion of the preferred provider network program (piloted in the prior reforms) and an extension of the pay without prejudice period to a full year. The governor also proposes a three-tiered approach to permanent partial disabilities: in looking for savings in this particular area, we can expect a strong push back from organized labor.

It will be fascinating to track the fate of this reform package. My money is on the pilot for voluntary delivery of benefits. If that pilot is eventually extended throughout the entire system, New York might finally be in position to provide workers comp coverage at a reasonable cost to employers.



You make some valid and insightful comments on Gov. Pataki's Workers' Compensation reform bill. I particularly liked the one about how ridiculous it is to raise maximum benefit levels to only $500 per week, when workers in neighboring Connecticut already get $931 and New Jerseyites get $891.

Yes - attorney involvement in claims does tend to make the system a bit more expensive. But it also makes the system more fair. The majority of my clients call me only after the insurance company has unfairly cut their benefits. Without help from attorneys, most of my clients are one step from the bankruptcy door.

Finally, a thorough analysis of the Gov. Pataki's proposal must include the political climate in which it was hatched. Gov. Pataki is not running for re-election in New York. He is trying to raise his conservative profile as he spends more time in Iowa on Presidential ambitions. He even linked his workers compensation proposal to the recent Delfi layoffs, as if the cost of workers compensation had something to do with it. One quick Google search will tell anyone what Delphi's real problems are (SEC investigation into financial irregularities, under-funded pension obligations, GM tanking, to name a few). We all agree that workers need compensation reform in New York. They have not had a benefit increase in 13 long years. A fair proposal untainted by Presidential politics might do the trick.

A question from a Pennsylvanian here:

The press release and many commentaries state that one "employee protection" measure is to "require that carriers or self insured employers provide the injured workers the option of a Section 32 settlement agreement on all claims."

Can anyone provide guidance on that issue? Is that something business really wants? What lobby is behind that aspect of the proposed reforms, and why?

The way it's written up sounds unusual to me.

Also, does a link to the full text of the proposal exist?

Dave Torrey
PA Dept. L&I
University of Pittsburgh


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This page contains a single entry by Jon Coppelman published on November 18, 2005 3:48 PM.

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