A non-profit workers’ compensation research organization that maintains its work is independent of the industry and objective has found itself at the center of a controversy in North Carolina over whether to trim workers’ compensation benefits.
A group of trial lawyers maintains that employers and insurers are lobbying state lawmakers to bring down the cost of benefits and cap the number of weeks an injured worker could receive benefits. They have criticized the Cambridge, Mass.-based Workers’ Compensation Research Institute (WCRI) for lending support to benefit changes with its recent report claiming that the state’s total cost per workers’ compensation claim are among the highest in the country.
The WCRI says its critics are misinterpreting its research and has defended the integrity of its work. It denies being an advocate for any particular public policy changes.
Currently, there is no specific piece of legislation calling for any changes in the state’s workers’ compensation. But the North Carolina Advocates for Justice, the trial attorney group, is sounding the alarm about a possible move to limit the number of weeks benefits would be paid to injured workers.
“Right now corporations and insurance companies are lobbying the legislature to cut benefits to injured workers,” said Dirk Taylor, chief executive officer for the Advocates for Justice. “Under their proposal even if a worker is injured on the job and continues to be totally disabled, his or her workers’ compensation will end after 500 weeks.”
Taylor said that such a change would just result in cost shifting because injured workers would have to rely on Social Security disability benefits and Medicare or Medicaid, which would benefit private insurers. “The cost insurance companies have been paying will be shifted onto taxpayers,” he said.
In 2005, the North Carolina Chamber of Commerce pushed for a cap of 500 weeks only to see it defeated by the trial bar and unions. The chamber remains committed to the proposal, calling it “a common sense reform that would go a long way toward modernizing and strengthening our workers’ compensation system.”
John McAlister, vice president of government affairs for the state’s chamber, said it is time for lawmakers to look at the system. “There have not been any comprehensive workers’ compensation changes since 1994,” he said. “From our perspective it is time to make changes to bring costs down.”
The Workers Compensation Research Institute bills itself as an “independent, not-for-profit research organization providing high-quality, objective information about public policy issues involving workers’ compensation systems.” Operating since 1983, the institute says it does not take positions on the issues it researches; “rather, it provides information obtained through studies and data collection efforts, which conform to recognized scientific methods.” It says its “[o]bjectivity is further ensured through rigorous, unbiased peer review procedures.”
In the CompScope Benchmarks for North Carolina, which it released last week, the WCRI found that the state’s total costs per workers’ compensation claim are the highest of the 16 states included in the study.
The study found that in North Carolina total costs per claim were just over $42,000 for claims evaluated from 2006 to 2009. The major cost driver is an increase in indemnity benefits that were 64 percent higher than the 16-state median at $23,600, according to WCRI.
The study also found that the state’s total cost per claim grew 47 percent between 2003 and 2004 and 2008 and 2009, which is 17 points higher than the 30 percent median growth rate of the other states.
The institute reported that the growth in the total costs per claim is driven by several factors including indemnity benefits and medical payments. A previous WCRI study released late last year found that North Carolina’s payments to hospitals were 42 percent higher for outpatient services and 43 percent higher for inpatient.
McAlister of the Chamber of Commerce said the study supports the need for reform. “Clearly there needs to be a change,” he said.
However, the Advocates for Justice immediately criticized the report, saying it is misleading since North Carolina doesn’t cover many minor workplace accidents. Therefore, the group says, the state has fewer claims that represent more severe injuries, which naturally leads to a higher cost per claim.
The trial attorneys claim that a more accurate picture of the state’s system is what employers are paying for coverage.
They point to a 2010 Oregon Workers’ Compensation Premium Rate Ranking Study, where North Carolina ranked 23 out of the 50 states and the District of Columbia with a premium rating index of $2.12 per $100 of payroll. Based on 2009 rates, that placed the state at 104 percent of the study’s overall median value of $2.04. The state’s ranking was virtually unchanged from the 2008 study, which found that North Carolina ranked 22 out of the 51 jurisdictions.
“The WCRI is funded by insurance companies and large corporations and routinely issues reports that support ‘reforms’ that will increase their contributors’ profits,” Taylor said. “Following the orders of its insurance industry patrons, WCRI misleadingly reports only half the facts and hides the truth: North Carolina has a workers’ compensation system that is fair to workers and employers.”
WCRI Executive Director Richard Victor defended the institute’s work. He said the critics are misinterpreting the study’s findings.
For one, Victor said, there is no conflict with the Oregon study. He said a state could have a high cost per claim but rank low in employers’ cost if that figure is offset by a low frequency of claims. Likewise, he said, a state could rank high in the study even if its cost per claim is low but its claims frequency is high.
“Both studies are meaningful,” Victor said. “But they (Advocates) want to focus on employers’ cost and we don’t benchmark that.”
As for North Carolina, Victor said the state does have a lower number of claims for a state its size. However, he said, its cost per injury is higher. “Hospitals are getting more reimbursements than other states,” he said. “Surgery costs are higher and you’re twice as likely to get back surgery than say a state like Massachusetts.”
Victor acknowledged that the institute does receive money from insurance companies, state governments, health care organizations, managed care companies and other non-profit entities. However, he said, the sources of funding does not infringe on its studies. “If the (Advocates) are saying our work doesn’t have integrity they are wrong,” he said.
Victor said WCRI is dedicated solely to research and is not an advocacy organization.
“For 25 years we have been frustrating public policymakers who have asked us what to do when it comes to reforming their system,” said Victor. “We don’t have the kind of experience to know what is right for a state. Those are value judgments that have to be made by policymakers.”
Market Remains Competitive
Reforms or not, the state’s workers’ compensation market appears to be competitive for employers, according to insurance agents.
Stuart Powell, vice president of Insurance Operations and Technical Affairs for the Independent Insurance Agents of North Carolina, said typically the association does not get involved with issues such as injured workers’ benefits. “We sell what we are given to sell,” he said.
But from a market perspective, he said there is plenty of coverage available at a fair price. He also pointed out that the changes in the state’s economic profile have had a positive effect on the workers’ compensation market. He said over the last 20 years, North Carolina has gone from a state that relied on heavy manufacturing, tobacco, and textiles to one that is increasingly involved in high tech industries that center around the state’s universities and other corporations.
“The transformation from heavy industry to more information-based businesses has made the loss experience more favorable,” said Powell.
North Carolina workers’ compensation rates are scheduled to increase by a statewide average 0.6 percent in the voluntary market and 4.1 percent in the assigned risk plan effective April 1. The industry’s North Carolina Rate Bureau, which is a separate entity from the state’s Department of Insurance, had initially requested a statewide average 1.2 percent increase in the voluntary market’s loss cost and 5.5 percent increase in the assigned risk market.
Insurance Commissioner Wayne Goodwin, however, disputed the filing and eventually settled on the lower figures. “I’m proud that through our work, North Carolina businesses will save $7 million in workers’ compensation costs and that we were able to negotiate a smaller-than-requested increase for the voluntary market,” he said last October.
In 2011, the state is projected to have a premium base of $1.16 billion, which due to lower rates puts it in line with the state’s premium volume in 2006.
In 2009, Goodwin ordered a statewide average 9.6 percent decrease in the voluntary market’s loss cost rates and called for change in the assigned market. The decision saved North Carolina employers some $120 million. The last time the state saw any major rate increases was in 2006 and 2007 when voluntary rates were increased by 9.3 percent and 7.3 percent, respectively.