Workers’ Compensation Roundtable

March 13, 2006

Albany, New York

This was the first of a series of Roundtables on WC planned by Senate Labor Committee Chairman George Maziarz. He said future discussions will include representatives of injured workers and the trial bar.

Other committee members present included Senators James Wright, Carl Marcellino, and Elizabeth Little. Participants included Denis Hughes, AFL-CIO; Dan Walsh, Business Council; Monte Almer, Compensation Insurance Rating Board; Richard Bell, WC Board; Peter Molinaro, NYSID; and Paul Magaril, SIF. Each was asked to make an opening statement, a process that took around an hour.

Opening statements

Business Council. Walsh began by talking about the troubled Delphi Corp. (a bankrupt manufacturer threatening to close its plan in Rochester) and attacking the state’s ‘permanent partial’ disability benefit, saying such cases account for only 11.7 percent of the total claims, but 73 percent of total costs. He said 42 other states place some cap or time limit on collecting permanent partial benefits.

Walsh pointed to the “no-fault” nature of the WC system and said it should be quicker in delivering benefits and getting people back to work. He backed Gov. Pataki’s reform proposals, saying the cost savings could offset the cost of higher weekly benefits.

AFL-CIO. Hughes, too went back to the origins of the WC system, saying it was a compromise initiated by business interests, which Labor initially opposed. Interestingly, he said the media exaggerates the amount of opposition currently between the two groups on the WC issue.

Hughes attacked the insurance industry, calling it an “equal third partner” in the system. He said the industry has come between the other two parties because it is the only party making a profit off the system. He invited the Business Council to agree with this premise and asked why it has not decried CIRB’s requests for rate increases. “Where does all the money go in this system?” Hughes asked, saying the sides need to have a conversation about this point rather than ratchet up the rhetoric.

WC Board. Bell, flanked by Gen. Counsel Cheryl Wood, said he is reminded of 1996, when the frustrations of all sides sparked major reforms. Maybe this can happen again, Bell said, adding that the WCB supports the Governor’s proposals.

Bell said the changes in the past decade at the WCB render it “unrecognizable” compared to 1996. He said the WCB has become “technologically advanced” in a quest to become more efficient and bring down transactional costs. He said the WCB looks for such ideas from everyone and will talk to all parties.

CIRB. Almer described the role of the rating board as a data collector. It is charged with developing rates based on job class plus experience that are actuarially sound and fair to employers. He also described CIRB’s inspection and audit services. He said the NYSID is assisting in enforcing correct rating, fining carriers that don’t comply. He said the experience and merit rating plans are intended to encourage safety, and described the New York workplace safety and loss prevention consultation program (Rule 59). CIRB also provides a forum for employers who question the job classification assigned to them. It is called on to generate cost and savings estimates for various proposals to change the system.

NYSID. Molinaro noted that he has worked at both the WCB and SIF as well as the NYSID. He said the NYSID’s main roles are to ensure the solvency of WC carriers and make sure employers are charged a fair rate, which is why there is a prior approval requirement for rates. For the past four years, he said, CIRB has made a case for a rate increase but the NYSID disagreed. [The NYSID finally granted a 5 percent increase effective Oct. 1, 2005.]

Molinaro added some credibility to Hughes’ questions about industry figures by saying the CIRB numbers are not always consistent with data the NYSID obtains from other sources. He cited the NAIC profit figures for the 2004 WC line as showing a ROE of 8.7 percent, while the industry says its profit was only 4 percent.

Molinaro touted the “tremendous efficiencies” created by changes at the WCB in recent years and said other savings come from the fact that claims are down and there is greater use of the Section 32 lump-sum settlement option. This item in the 1996 reforms turned out to be a tremendous savings for the industry, Molinaro said. He described it as an option whereby a worker waives rights under the WC system, accepts a lump sum, and frees both the worker and the employer from the WC system going forward.

SIF. Magaril, sitting in for SIF’s new Executive Director David Wehner, said the Fund competes with private carriers, keeping rates lower than they otherwise would be. SIF, currently the country’s eighth largest WC writer, currently writes about 50 percent of the state’s policies and holds 38 percent of the market by premium volume. (Wehner came from the top job at the WCB, where he replaced Robert Snashall in Feb., 2004.)

He said SIF has helped craft the Governor’s reform bill, calling it “a solid attempt to address the needs of all parties” that would increase benefits by 25 percent while cutting costs by 15 percent. Magaril said SIF does not think the profits of the industry are the real problem, citing WC as placing 11^th out of 14 lines on profitability in New York. He cited underwriting loss of -13% and a Loss Ratio of 74.2%, 18% higher than the average for all lines.

Magaril joined the Business Council in saying the real problem is permanent partial disability benefits.

Dialogue

Given the first chance to ask a question, Hughes pressed Molinaro to elaborate on the discrepancy between NAIC and CIRB profit numbers. Almer tried to explain that they are not apples to apples, but his explanations only prompted Sen. Maziarz to request a report showing the two figures for each year.

Other Senators piled on, implying the NYSID does not hold CIRB accountable for producing accurate numbers. Molinaro said that each year’s rating decision is accompanied by a rationale discussing the NYSID’s findings regarding the numbers in the filing.

A discussion ensued about self-insurers, which CIRB does not get involved with, and who are required to post a bond. (Delphi reportedly got the WCB to help reduce the cost of the bond it is required to post, according to Sen. Maziarz). Bell said a current WCB project is considering whether to treat the self-insurance community as a whole, not as individuals, regarding the self-insured bonds. Hughes said the unions also have spent a lot of time on the bonding issue, but said low-cost bonds should be available only to “good” employers. Bell pointed out that, once a bond is exhausted, the benefit costs are spread to all through the uninsured employer fund.

Walsh used his next turn to restore the focus to the Governor’s bill, saying the Section 32 settlements get the “gaming” out of the system and provide predictability.

Hughes revisited the benefit level issue, saying in 1992 the maximum weekly benefit of $400 was set at about 2/3 of the average weekly wage. Currently, he said, that value would be around $650. He said the benefit should be raised and then indexed. He also defended New York’s permanent partial benefits as very important to workers. He asked again, where does the money go—and what about those savings from Section 32 settlements?

In response, Sen. Maziarz seemed to side with Hughes that a worker who is permanently injured should get permanent benefits. Walsh quickly reminded the Senator of the cost factor and said the Business Council would oppose indexing.

Molinaro said one provision in the Governor’s bill would allow large risks to be written on a pooled basis by several insurers—which is allowed for other lines. This picked up on earlier comments that both bonds and insurance are harder to get since 9/11 especially for large concentrations of workers. Maziarz asked, why not do this as a standalone; Molinaro quickly rejoined, “I wouldn’t advise it”—meaning it is better not to start breaking up the package.

Magaril disputed a plea by Walsh to get the emotion out of workers’ comp, which Magaril said will never happen. He clarified that the provisions of the Governor’s bill do not affect permanent total disability, nor the treatment of current “scheduled” disabilities such as the loss of certain body parts. He said the Governor is only trying to extend the scheduled approach to other types of injuries, based on studies that show that some injuries—mainly permanent partials—currently are “overcompensated” while some—the scheduled injuries— are “undercompensated.” He said the SIF would be in a better financial position if not for the “takings” that diverted about $1 billion from SIF into state coffers in the early 1990’s.

Hughes then began an analysis based on the projected savings of $892 million annually by capping permanent partial. He said claimants now get 64 percent of the total WC premium in benefits, or approximately .64 X $3.5 billion ($2.24 billion). [His apparent point: the $892 million savings would equal about 40 percent of the total current benefits paid; while the Governor’s proposed benefit increase would hike the maximum weekly benefit—for which not all workers qualify—only 20 percent, from the current $400 per week, to $500 per week by 2009.] “A lot of money is leaving benefits—it’s not all going back,” he said.

Hughes again asked to see the numbers, pressing for “transparency.”

Walsh asked Almer to estimate the savings from the proposed provisions regarding Article 32 settlements. [The Governor’s bill would require every insurance carrier, self-insurer and NYSIF to offer each claimant in cases of permanent or total disability or death the opportunity to enter into a Section 32 settlement agreement at some point—the timeframes differ depending on the nature of the claim. Parties could agree that benefits under such agreements could be provided through the purchase of an annuity contract.] Almer said CIRB was unable to arrive at a cost estimate for this.

In one of the most interesting comments of the day (perhaps because he was the only one to say it), Molinaro said too much money still is being eaten up in fighting these cases. The parties are litigating things that shouldn’t be litigated—though he hastened to say that employers and insurers need to defend themselves. “Let things be settled,” he said, adding that the system needs more objective standards.

Maziarz reverted to the topic of technology, saying the budget added money for new technology, intending to prevent delays.

Hughes again brought up the issue of where the money goes, providing an analysis suggesting that 35 percent of the premium “stays in the system” as the cost of administering the system rather than providing benefits.

Bell defended the WCB, saying the Board’s workings used to be the main source of complaints about the system. He pointed to other features of the Governor’s bill, such as the increase (from $500 to $1,000) in specialist or diagnostic care that could be accessed without prior authorization.

Hughes said people need to know how to stop cases from being controverted. “A lot is spent on slowing down cases, and people don’t feel they are being taken care of,” he said.

Bell said delay benefits no one in the end. “If you’re going to pay, pay sooner rather than later.” He said the WCB has accelerated its Office of Appeals timeframes down to the point where delay does not pay—and the WCB is now upheld 90 percent of the time by the Appellate Division.

Sen. Maziarz wondered why the system is getting more expensive.

Bell countered that rates actually came down 40 percent after the 1996 reforms, but that individual employers’ premiums depend on other factors. He criticized California’s “open rating” system as promoting instability, saying insurers wrote at an underwriting loss prior to the pullback of the stock market.

Closing points

Sen. Maziarz asked Business and Labor each to make a closing statement.

Walsh covered one more aspect of the Governor’s bill, letting employers pay prescription drug costs for up to one year without prejudice to the case. Responding somewhat obliquely to Hughes about the insurance industry, he said people get into the workers’ comp system as a way to make money, but it is the employer who pays the costs.

Hughes said he always wants to know, in Labor negotiations as well as this issue, where the money is. “We [Labor] are the only ones looking at benefits as our prime concern,” he concluded.