For N.Y., Workers’ Comp Costs Become Economic Development and Job Issue

Gov. Pataki Proposes a Round of Reforms Again; Business and Labor Square Off Again

Claiming the current system in hurting the state’s economic competitiveness, Gov. George E. Pataki has proposed a plan to reform New York’s workers’ compensation system.

Pataki said his plan would reduce costs for businesses by more than 15 percent, or $850 million, while increasing benefit levels for injured workers by 25 percent, the fist boost in 14 years.

His announcement was met with applause from business and insurance leaders but criticism from labor.

This is not the first time Pataki has waded into the workers’ comp waters. In 1996, he won changes that are credited with cutting costs by 25 percent on average. He proposed a series of reforms in 2004, but the Legislature failed to act on them. This latest proposal mirrors those he put forward last year.

Pataki said that “workers’ compensation is one of the biggest costs for businesses and if left unchecked can be an impediment to creating new jobs.”

Delphi bankruptcy
Pataki cited the situation of auto parts manufacturing company Delphi, which has filed for Chapter 11. The company is deciding whether to keep open its plants in the state and the CEO criticized the state’s workers’ comp costs.

“We’re working hard to help manufacturing-based businesses, such as Delphi in western New York, stay competitive in the global economy and protect thousands of New York jobs, and these new reforms mark another step in those efforts,” Pataki said.

Last May, when workers’ comp rate hikes were under consideration, Business Council of New York State President Daniel B. Walsh wrote Pataki that the program needed “immediate reform” to curb high costs and help employers. “The state’s business community needs real reforms to workers’ comp and they need them fast,” Walsh wrote.

Walsh maintained that system has fallen into a “Catch-22” situation. If rate increases are approved, the state’s businesses will continue to pay significantly above the national average; if the industry’s rate requests are rejected, insurers will write less coverage in the state. No rate hikes were approved in 2005.

Scheduled benefits
There are a number of provisions in Pataki’s blueprint aimed at controlling rates by cutting costs for employers. The key measure would set limits on payments for permanent partial disabilities. Unlike most states, New York now provides some disability benefits for life. A 2001 study by the Workers’ Compensation Research Institute concluded that the state’s average indemnity cost per PPD claim is 110 percent above the median.

Citing statistics from the insurance, employers argue that the Empire State’s workers’ compensation costs are 72 percent above the national average on a costs- per-case basis. This above-average cost is largely due to cases for which open-ended benefits are given to workers without specific statutory schedules, businesses claim.

“For these cases, New York offers lifetime benefits. No wonder these cases account for 14 percent of claims, but more than 77 percent of all compensation costs,” the BCNYS testified earlier this year.

To bring these costs under control, Pataki wants a tiered system under which the length of the benefits period is coordinated with the severity of an individual’s disability. The state would establish a medical committee to develop objective medical criteria for determining the level of impairment.

To further relieve employers, the plan would reduce the assessment for the Second Injury Fund by more than $190 million. It would also authorize fee schedules for medical goods and pharmaceuticals.

Insurers and self-insured employers would be allowed to contract with networks to perform certain tests and exams and require claimants to use facilities within that network except in emergencies, giving employers greater control over medical costs.

Employee benefits
For workers, the plan promises to phase-in the first workers’ comp benefit increases since 1992. It would hike the maximum weekly indemnity benefit paid to injured workers by 25 percent from $400 to $500 per week. The maximum disability benefit for injured workers injured would increase 100 percent, from $170 to $340.

Workers would be able to buy supplemental benefits.

The plan also aims to speed up the delivery of benefits. Employers would have to file an injury report with their carrier within three business days of notification of the injury. Claimants could receive non-emergency medical procedures costing under $1,000 without prior authorization. Currently the figure is $500.

Pataki’s plan also broadens the “payment without prejudice” provision to include prescription medicines. Under this program, insurers may provide benefits for up to one year while a case is litigated, without admitting liability.

Business leaders spoke out in support of reform. Daniel Walsh, president of the Business Council of New York State, urged lawmakers to act quickly to bring the state in line with others.

“Taken as a whole, this initiative will help employers of all sizes and types, particularly those in New York’s manufacturing community,” Walsh commented.

Randy Wolken, president of the Manufacturing Association of Central New York, also welcomed the plan. “It is imperative that New York realizes the impact workers’ comp costs truly have on employers, and our competitiveness with other states,” he said.

The package was hailed as a positive first “step forward” by the Independent Insurance Agents and Brokers of New York, Inc.

Labor’s question
However, labor was less enthusiastic. While supportive of increasing and indexing benefits for injured workers, labor thinks the proposed tiered system for PPD benefits is unfair.

“If you make it harder to get benefits, what difference does it make if the benefits go up?” asked Denis Hughes, president of the New York State AFL-CIO.

“We have a lot of problems here,” Hughes told The Associated Press.

“Workers’ comp has become an economic development issue. We’ve lost sight of why it was created in the first place … to care for injured workers.”