Workers’ Compensation Reform: Saving Money or Shifting Costs?

For the second time in six years, the North Carolina legislature is considering amendments to the workers’ compensation benefits. Among the heavily debated proposals is the elimination of lifetime disability benefits — instead injured workers would be limited to nine and one-half years of benefits.

Business Competition and Job Creation in North Carolina

Some proponents of benefit changes say North Carolina must reform its workers’ compensation law in order to compete for business and new jobs. Yet figures from the Bureau of Labor Statistics and state Governor’s Office show that North Carolina ranks third in the nation for declining unemployment and fourth in the nation for job creation, with 36,000 jobs created in the last 12 months. Among the top ten states in business climate rankings by CEO magazine, Forbes, CNBC, Site Selection magazine, Pollina Corporate Real Estate and Business Facilities magazine, many would consider North Carolina a national leader in business development.

Workers’ Comp Reform and Premium Rates

Workers’ compensation premiums are at $2.12 per $100 of payroll; while that places North Carolina slightly above the national median of $2.04, according to a 2010 ranking by the Oregon Department of Consumer and Business Services, this rate is lower than 22 other states. In fact, North Carolina is faring better in premiums than California, Texas, New York, Pennsylvania and South Carolina — all which have recently passed workers’ compensation reform laws.

Despite the push for “reform” from the North Carolina legislature, from 2008 to 2010, premiums in North Carolina dropped 15 percent — more than in the reform states of California, Texas and New York during that same period. Indeed, Elizabeth Crum, deputy secretary for compensation and insurance in the Pennsylvania Department of Labor & Industry, concedes that reforms in Pennsylvania have only had a “subtle” effect on workers’ comp premiums in that State. Crum says the workers’ comp dollar has gone up due to utilization review. Thus, rather than spending money on injured workers, the insurance companies are spending money on “armchair” physicians who review a worker’s medical records from a remote location, and often second-guess the worker’s own treating physician’s recommendations.

Workers’ Comp Reform and Benefits

Short of fraudulent claims, “savings” realized through workers’ compensation reform may actually amount to a shifting of expenses from employers and their insurers to the public sector, including taxpayers, Medicare, Medicaid, Social Security Disability Insurance (SSDI), and other social services. A number of workers’ compensation experts testified before a Congressional subcommittee about what they called an erosion of benefits over the last decade and the barriers to qualification that various states have erected. And the U.S. House of Representatives Committee on Education and Labor has requested the Government Accountability Office to evaluate the extent to which state cuts in workers’ comp benefits are transferring costs to SSDI.

RAND Institute for Justice prepared a research report recently for the CCHSWC in which it was found that the state’s “permanent partial disability benefit levels fell short of the generally accepted two-thirds income replacement level of adequacy.” Additional changes have cut these benefits even further while also making it more difficult to qualify for benefits. To compensate for the shortfall in income and healthcare coverage, injured or ill workers are looking to unemployment benefits, Social Security, Medicare and Medicaid, and employer-sponsored health insurance programs.

Meanwhile, although New York increased the maximum weekly benefits to $760, it also discontinued lifetime benefits; all benefits now expire within ten years. In Florida, the formula for figuring attorneys’ fees allows for no upward adjustment meaning that in some cases attorneys could be making approximately $8 an hour. This means that many injured workers are forced, unable to find representation, to accept whatever benefits are offered, if any at all.

Injured workers and their families should protect their rights by immediately contacting a workers’ compensation attorney. A lawyer can advise clients of the current state of the workers’ compensation law and work to maximize benefits for sick or hurt employees.