Today we examine two states, side by side on the map, going in opposite directions in their workers comp rates: Connecticut, which has the dubious distinction of being the second most expensive state (only Alaska is higher) and Massachusetts, ranked 44th for overall costs, with rates so low the market is beginning to implode. These states may be headed in opposite directions, but each faces a pending crisis.
Messing with the Miracle
We begin with Massachusetts, which my colleague Tom Lynch summarized brilliantly a few weeks ago. After nearly two decades of rate reductions, MA employers are now paying about the same rates as existed in the early 1980s. Compared to the other New England states, MA rates are consistently lower, some times one fourth that of their neighbors. So it is hardly surprising that the Workers Compensation Rating and Inspection Bureau (WCRIB) sought an increase in the rates: they initially requested 18 percent, with the realistic hope of ending up somewhere in the vicinity of 6 to 8 percent. A rate increase of this magnitude would maintain the state's position as the lowest among the major industrial states, still far below its New England neighbors.
The response of the state's Division of Insurance is, in its methodology and ultimate result, a public work that might make the infamous Big Dig seem prudent and reasonable. The Division dismantles the entire application, demeaning and ultimately dismissing virtually every data element supporting the rate increase. While it is true that some of the data was inconsistent - due largely to the idiosyncracies of insurer submissions - the report's conclusion that no rate increase was merited defies common sense. Indeed, when the attorney general opines that higher rates "would greatly increase the cost of doing business in Massachusetts and have a deleterious effect on the overall employment level," one can only wonder what they have been smoking - perhaps the substance on the ballot up for legalization next month.
One the mainstays of the Division's argument is the fact that insurance carriers continue to offer rate deviations: proof, in the Division's eyes, that the rates must be high enough. Perhaps it is time to remind the bureaucrats who administer this program that insurers always think they can defy the odds and find the optimum risks. Insurers sell insurance to the people and organizations least likely to use it - or so they hope. As Tom Lynch likes to say, "insurance companies are prone to eating their young." Nonetheless, a glance across state lines and across the country reveals that Massachusetts is about to cook the golden goose: with the current unabated rate suppression, the assigned risk pool will continue to grow and savvy carriers will scale back their participation in the workers comp market.
Asleep at the Wheel
While Massachusetts's inaction on rates jeopardizes the most successful comp reform program in the country, Connecticut meanders toward economic disaster. As recently as 2008, the state was ranked 20th for overall costs in the invaluable Oregon Rate Study. But in 2010 they rose to 6th, and the state now sits in the number two spot, ahead of such reliably high cost states as New York, California and Florida. The median cost of comp in CT has risen to $2.99, compared to the nation-wide average of $1.88. (MA comes in at a paltry $1.37.) CT suffers from a toxic combination of very high medical costs (doctors love it) and a worker-centric system that is extremely generous with benefits. To add insult to injury, NCCI is requesting an additional 7.1 percent increase in the already bloated rates. Costs are out of control and regulators are asleep at the wheel.
Surely it is time for business advocates in Connecticut to raise the red flag. The cost of comp has reached unacceptable levels. When business owners can move their operations to New York to lower the cost of workers comp, you are in deep, deep trouble.
Across the Rate Divide
MA and CT provide compelling examples of enigma variations: in the perpetual search for comp rates that are fair to both carriers and businesses alike, these states have drifted too far from the middle ground. How they reached this point may be an enigma, but what they need to do is clear: take immediate steps to extricate themselves from rate cycles that simply are not working. It will take leadership, vision, and courage to confront these reverse-image crises.
In MA, regulators must stop playing political games - no easy task in a hyper-political state - and allow rates to begin a long overdue, moderated rise.
In CT, regulators must confront entrenched stake holders and begin to exert control over runaway costs.
With rates either much too low or much too high, state leaders and regulators are mired in swamps of their own making. If the current inertia is allowed to continue, the two states may eventually end up in the same place: with dysfunctional comp systems incapable of serving the needs of injured workers and employers alike.