The political battle lines are already being drawn in the fight to reform North Carolina’s workers’ compensation system, the second attempt in six years.
The proposed reforms and the arguments in support of them are very similar to those bandied in 2005. This time around, though, the rhetoric is even more strident, with proponents referencing so-called “successful” reform measures in other states and arguing that North Carolina must follow suit or lose its ability to compete for business and new jobs. This time around, the N.C. Chamber of Commerce and the insurance lobby also view the General Assembly as more malleable to their viewpoint now that majority has shifted to the Republicans.
The big problem, however, is that the reformers’ arguments are specious.
There’s no quantifiable evidence that workers’ comp costs impact business recruitment or job creation in North Carolina. Insurance premium rate decreases aren’t the carrot they are made to be, either. In most states that have passed reform measures, the promised premium decreases haven’t materialized for most companies, meaning that mainly insurance companies are profiting from reform.
Meantime, any “savings” realized through workers’ compensation reforms have cost injured workers, taxpayers and businesses plenty, as the expense of caring for injured workers has shifted from employers and their insurance companies to the public sector and to employers’ group health plans.
Let’s take first this argument that with our current workers’ compensation laws, North Carolina isn’t as competitive as other states. Numerous independent rankings and state job creation numbers prove otherwise. With 36,000 jobs created in the last 12 months, North Carolina ranks third in the nation for declining unemployment and fourth in the nation for job creation, according to figures from the Bureau of Labor Statistics and the N.C. Governor’s Office.
Our state also has one of the most favorable business climates in the country, based on such important factors as state and local taxes, the size and skill level of the workforce, transportation infrastructure and living environment. For the ninth year, North Carolina was the state with the Best Business Climate in 2010, according to Site Selection magazine. In similar ratings by CEO magazine, Forbes, CNBC, Pollina Corporate Real Estate and Business Facilities magazine, North Carolina ranked second, third, fourth, fifth and sixth, respectively, for its pro-business climate. Last spring, North Carolina was also found to have the lowest state and local tax burden on business by the Council on State Taxation and Ernst & Young.
To say that the current workers’ compensation law is costing North Carolina jobs ignores the facts. By the way, many states with lower comp costs and lower insurance premiums than ours fared worse in these independent rankings of business climate, further devaluing the argument that North Carolina must reform its workers’ comp statutes to become competitive. Our state is not only competitive in business development and job creation; it’s a national leader.
When it comes to workers’ compensation premiums, North Carolina’s, at $2.12 per $100 of payroll, are just slightly above the national median of $2.04 per $100. Businesses in 22 other states, including those that have recently passed reforms – California, Pennsylvania, New York, South Carolina, Ohio and Texas – pay higher WC insurance premiums than employers in North Carolina, according to a 2010 ranking by the Oregon Department of Consumer and Business Services.
In fact, premiums here dropped 15 percent from 2008 to 2010 – without reform. Interestingly, the rate decreases in reform states California, Texas and New York weren’t as significant as in North Carolina. And decreases in South Carolina (15 percent) and Pennsylvania (16 percent) were only slightly greater than here.
One statistic reform proponents are sure to cite will be a 2010 comparison by the Workers Compensation Research Institute that showed indemnity costs per workers’ compensation claim in North Carolina were among the highest of the 16 states studied. However, this comparison is statistically invalid as it relies almost exclusively on incomplete data provided by insurance companies and self-insured employers, the same organizations that underwrote the study and will benefit from its conclusions that workers’ comp costs in North Carolina and other states are too high.
The WCRI study is based on a study of 16 large states – North Carolina, Indiana, Wisconsin, Texas, Minnesota, New Jersey, Florida, Minnesota, California, Maryland, Massachusetts, Iowa, Tennessee, Illinois, Louisiana and Pennsylvania – which it claims represent more than 50 percent of workers’ comp benefit payments. Interestingly, the WCRI makes no attempt to examine workers’ comp data for all 50 states and compile an accurate ranking of costs. Additionally, the states included in the study are battlegrounds for reform.
Moreover, WCRI’s findings emanate from a tortured use of diverse and incompatible statistics taken from 27 different data sources. Of the data WCRI collected, it excluded 42 percent as incompatible. A statistician who reviewed WCRI’s findings and methodology for the Deuterman Law Group deemed the study statistically invalid. His assessment: The WCRI study is little more than a tortured attempt to cobble together data from a large number of disparate sources and treat them as though they are meaningful.
What’s more, the source of WCRI’s data is suspect. It was provided by national and regional insurance companies, claims administration organizations and state workers’ comp funds, many of the same entities that underwrite WCRI’s research. These data providers have a vested interest in the results of WCRI’s findings. It’s comparable to pharmaceuticals companies funding drug trials.
Now, let’s take a look at aftermath of workers’ compensation reform in other states. I believe that when most voters, taxpayers and lawmakers learn the facts, they’ll say no to similar changes in North Carolina, for they can only be accomplished on the backs of injured workers and at great expense to taxpayers.
In November, several of the country’s most respected workers’ compensation experts testified before a Congressional subcommittee that workers’ compensation benefits have eroded over the last decade and states have erected barriers that make it harder to qualify. These factors, along with caps that limit how long people can collect benefits, no matter how severe their injuries, have shifted the burden of caring for disabled workers to taxpayers through unemployment insurance, Medicare, Medicaid, Social Security Disability Insurance, food stamp programs, and other social services that are already over-burdened with unemployed workers and their families.
The U.S. House of Representatives Committee on Education and Labor is so concerned about this issue that it has asked the Government Accountability Office to evaluate the extent to which state cuts in workers’ comp benefits are shifting costs to Social Security Disability and how the government might recoup some of this expenses going forward from insurance companies and self-insured businesses.
In California, workers’ comp reforms have “saved” businesses $55 billion, according to some news reports. And Florida employers’ workers’ comp premiums have dropped nearly 62 percent since reforms were enacted in 2003. But at what cost? You can’t talk about the savings generated by workers’ compensation reform without also examining the economic costs for workers, state and federal governments and businesses generated directly as a result of these “reforms.”
A December 2010 RAND Institute for Civil Justice research report prepared for the California Commission on Health and Safety and Workers’ Compensation found that California’s “permanent partial disability benefit levels fell short of the generally accepted two-thirds income replacement level of adequacy.” Reforms cut these benefits even further and made qualifying for them more difficult, worsening outcomes for the injured workers who arguably need benefits most because they have no other income coming in.
It’s naïve to believe that workers in these states don’t need the continuing care and benefits that permanent partial disability provides. They have simply been denied them because the workers’ comp laws in their states have been eviscerated and skewed to benefit not workers and employers but insurance companies. In these states, injured employees must look beyond the workers’ compensation system for the financial and medical support they need.
Without adequate workers’ compensation coverage, injured workers are forced to find other ways to make up the shortfall in income and healthcare coverage. This burdens not only the unemployment benefits, Social Security, Medicare and Medicaid but also employer-sponsored health insurance programs. As any business owner knows, increased usage causes group health insurance rates to go up, effectively negating any savings realized from declining workers’ compensation insurance premiums.
Reforms enacted in 2007 in New York have created a scenario where cost-shifting is inevitable. While New York raised maximum weekly benefits to two-thirds of the state’s average wage (with a cap of $760), it also put an end to lifetime benefits for permanent injuries. Those benefits now expire in 10 years. According to research on poverty in America by Pennsylvania State University, $760 a week is barely a living wage for a single parent with one child in New York. That amount falls about $23,000 short of a living wage for a family of four.
“Today, even with the payout increases, New York lags behind many states,” according to an investigation by The New York Times. “Injured workers in Iowa can get about double New York’s limit.”
Florida’s experiences provide yet another cautionary tale.
After reforms passed, denials jumped from a fourth to a third of all claims, according to reports in The Palm Beach Post, and appeals of those denials dropped, as well. Things went from bad to worse for workers when former Florida Gov. Charlie Crist signed a law capping attorney’s fees in workers’ comp cases at $1,500 – as low as $8 an hour. Tort reformers sold the legislation as a way to rein in “greedy trial lawyers.” In effect, however, it is injured workers who pay the price. Without representation, these workers are forced to accept whatever benefits insurance companies offer, if they offer them at all.
We are at a crucial juncture in workplace politics in North Carolina. If workers’ compensation reform, as proposed by the N.C. Chamber, passes, we will be taking a step back in time to an era when worker rights and worker safety were not a priority. This is a matter of public responsibility, not simply economics. And when considered in context of other costs, the promised economic benefits and gains from workers’ compensation reform don’t exist.
Among the reasons that North Carolina’s workers’ compensation system has worked so well for so many years is that it’s efficient and well managed by the N.C. Industrial Commission. It also is structured to provide good benefits to injured workers at a low cost to employers and insurers.
Unlike many other states, North Carolina has a much higher threshold for entry into the workers’ compensation system. Injured workers must prove that their injury was the result of an accident. Additionally, North Carolina’s list of compensable occupational illnesses is shorter than other states. Both keep costs in check.
We could eviscerate North Carolina’s workers’ compensation statutes, as other states have done. We could make it easier for insurance companies to deny claims. We could place limits on how long people can collect workers’ comp benefits. But in doing so, we will be providing employers with a disincentive to protect workers and to follow important safety standards.
I have been involved in many cases in which it was clear that the employer weighed the economics of safety versus productivity and chose the latter. If we limit workers’ compensation benefits, that equation will become even more skewed away from safety. In such a system, workers will pay the costs of these reforms not only with their livelihoods, but with their lives.
