December 17, 2007

Workers Comp in New Hampshire: A Cold Wind Blows

For those of you into weather, here is what's happening today on top of Mt. Washington in New Hampshire, home of some of the world's most extreme conditions: it's -13 degrees fahrenheit, with the wind blowing at 93 miles an hour. Wind chill a brisk -59 degrees. The wind has died down a bit - a few days ago it was clocked at 117 mph. That's hurricane force, but hardly the usual tropical setting for a hurricane.

If extreme cold is not your thing, you can generate some heat in the granite state just by mentioning House Bill 471, a product of last year's legislative session. The law requires workers comp coverage for all people within a corporation if they are "actively engaged in on-site work on any construction site within the state." The bill eliminated an exemption for up to three corporate officers or directors.

The bill was a well-intentioned attempt to expand coverage in the system and eliminate premium avoidance. That's all well and good, but when you factor in the very high cost of coverage in the construction trades, some small operators would rather face the winds on Mt. Washington than pay the premiums.

New Hampshire is ranked 19th for overall costs of workers comp in 2006 (as determined by Oregon's invaluable study on state to state premiums). This was an improvement over the 2004 rank of 12th. However, a closer look at construction classes is not so favorable. Quite a few construction classes rank in the top five for cost among all the states. Here are a few examples:
- concrete construction (class 5213). $27.20 per $100 of payroll. Second highest in the country.
- excavation (class 6217). $14.81 per $100 of payroll. Third highest.
- Wallboard (class 5445). $19.66 per $100 of payroll. Fourth highest.
- Roofing (class 5551). $48.34 per $100 of payroll. Fourth highest.

When you combine the very high rates for coverage with the attempt to force more small businesses into the system, you create a very severe wind chill factor indeed. New Hampshire lawmakers have already drafted an amendment to the law reinstating the exemptions.

Solutions for the Granite State
The backpedalling by legislators does not really confront New Hampshire's problem, which is twofold:
First, the rates - especially in construction - are too high. The state is at a competitive disadvantage when compared to other New England states (Massachusetts, despite its reputation for high taxes, has comp rates roughly half of those in New Hampshire). These high rates provide a very strong incentive for people to opt out of coverage (when given a choice) and avoid coverage altogether (legally or otherwise).
Second, the cost of insurance for independent contractors is so high, it's absurd. (See our related blog here.) The assumed payroll is a whopping $58,100 (highest of all the New England states). Combine that with typical comp rates in the $20 range and the cost of comp for an independent contractor drifts well above $10,000 per year. For the typical small business, that is likely to exceed total profits.

So here are a couple of practical suggestions for New Hampshire. First, figure out why the cost of comp in construction is disproportionately high. Develop some incentive programs to bring down those costs. For immediate relief, follow the example of Massachusetts and drop the wage basis for sole proprietors by at least 30 percent. The unreasonable $58,100 becomes a theoretically feasible $40,670. The typical independent contractor would face a premium around $8,000. That's still too high, but at least it's moving in the right direction. A lower wage basis, combined with significantly lower rates, might generate real interest.

In the meantime, bundle up. We're in for some serious weather. By Mt. Washington standards we might be having a heat wave, but it sure feels cold to me.

| 1 Comment

1 Comment

The rate for a classification is a function of reported claim costs divided by the payroll reported for the class. The more workers that keep their payrolls out, but still get their claims into the system, through their own WC policy or someone else's, the higher the rates will get driven. The lower the "assumed payroll" is set, the higher the rates will be. This was the problem that the earlier legislation was designed to address. Now what?

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This page contains a single entry by Jon Coppelman published on December 17, 2007 2:04 PM.

News roundup: Health Wonk Review, survival story, manhole covers, I.C.E. followup, OSHA agenda was the previous entry in this blog.

Last minute holiday gift ideas for the insurance professional in your life is the next entry in this blog.

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