The workers' compensation crisis: a labor viewpoint

Labor Research Association (LRA) is "a non-profit research and advocacy organization that provides research and educational services for trade unions." We'll be adding it to the tools in our sidebar - we try to strike a good balance of resources from both management and labor perspectives, as well as from the bell jar that is the insurance industry itself.

We were particularly interested in Workers’ Compensation Crisis Revisited, an LRA Online article that ran last October. The author states that the crisis was largely brought on by insurers who engaged in a price war to gain market share. When investment income fell and reserves were depleted, prices began climbing. With rates inevitably soaring, employers clamor for reform, and employee benefits are often the target for reform efforts. The author points out:

"But in most states, benefits remain at the same inadequate levels that have marked workers’ compensation for decades, and the disparities in benefit payments between states have reached absurd proportions.

Under the patchwork of state laws, the protections and benefits provided to injured workers vary significantly. Maximum weekly benefits for temporary total disability range from more than $1,000 a week in Iowa, an amount that equals 200 percent of the state’s average wage, to $400 in New York, or less than half of the state’s average wage. Ohio caps benefits for permanent partial disability at 200 weeks; some states provide benefits for the duration of the disability."

Also, note the following cited statistics:

Workers’ Compensation Costs 2002-2003, Private Industry
Per hour worked
Q1 02 ..... .35
Q2 02 ..... .37
Q3 02 ..... .38
Q4 02 ..... .38
Q1 03 ..... .40
Q2 03 ..... .41

As a percent of payroll
Q1 02 ..... 1.6
Q2 02 ..... 1.7
Q3 02 ..... 1.7
Q4 02 ..... 1.7
Q1 03 ..... 1.8
Q2 03 ..... 1.8

Source: Bureau of Labor Statistics

The author suggests that:

"The only lasting solution is to regulate workers’ compensation rates so that premiums bear a direct relationship to the actual level of anticipated claims and investment income, and benefits follow uniform guidelines. Without regulation, insurers will continue to engage in the destructive boom-and-bust cycle that incites wage and benefit cuts by employers, provokes bad legislation, and leaves workers with inadequate benefits."

We would agree with many points raised in this article. This crisis was largely one that the industry brought on itself by inadequate pricing. Decimating worker benefits would be knee-jerk at best, a response that is neither a fair nor a wise reaction to the current employer pain. It breaks faith with the exclusive remedy "pact" forged in the original enactment of workers comp: employers provide medical and indemnity benefits to injured workers, and in exchange, workers forego access to the tort system. Workers comp was designed to protect both worker and employer interests.

Clearly, there have been and will be some state systems that are broken, that have built-in negative incentives, or that scream out for major reform - California, Florida, or Texas come to mind. But even in those states that have had successful reforms, such as Massachusetts, market fluctuations continue to bedevil employers.

Wise employers that do not want to be whipsawed by market vagaries take the reins in their own hands: the best way to control your experience and your costs is to ensure that no injuries occur; the second best way to control your costs is to treat injured workers well and fairly, provide excellent medical care, and help workers to recover and get back to work as soon as possible; that, and taking the trouble to become an educate, savvy, and active consumer of the administrative services that your insurer provides. At an average 1.8% of payroll, managing your workers compensation experience must become a core corporate competency.