Injuries Decreasing Yet Costs Increasing?
The Enigma of NC’s Workers’ Compensation System
One key measure of a state’s workers’ compensation system is the frequency of claims filed by employees. Theoretically, when workplace safety improves and injury claims decrease, workers’ compensation costs in a state would also decrease.
Ironically, NC businesses are paying more in workers’ compensation costs despite their progress in safety and a reduction in almost all types of claims in a wide variety of jobs. According to the NC Rate Bureau, between 2001 and 2005, there were significantly fewer “lost time” claims in manufacturing (down 14%), contracting (down 19%) and goods and services (down 18%) – to name a few. Additionally, between 1997 and 2006, the frequency of “lost time” claims declined 36 percent, and “permanent partial” and “temporary total” claims declined 27 percent and 40 percent, respectively.
So, North Carolina’s significant reduction in workers’ compensation claims in recent years – of nearly all types across many different occupations – should be benefitting both employers and employees, correct? The answer is yes, in theory, but in fact decreases in workers’ compensation claims are not benefitting NC employers, employees or the system as a whole. Instead, between 2001 and 2005, employers’ workers’ compensation costs have gone up where they’ve been decreasing in many states across the nation. Why?
Consider these facts about workers’ compensation benefits paid in NC versus claims filed:
According to the September/October 2006 issues of Workers’ Compensation Policy Review, in 2002, NC ranked second among 47 jurisdictions for the amount of cash benefits paid, despite ranking near the bottom (43rd) in the frequency of claims. The percentage of benefits paid in NC rose from 8.4 percent in 2002 to 20.6 percent in 2005 (almost tripling), while the number of North Carolina workers covered increased by only 100,000 – from 3.6 million in 2002 to 3.7 million in 2005 (NC Rate Bureau). Workers’ compensation benefits are on the rise in NC, which is out of sync with the rest of the nation where benefits are going down. Again, why is this?
A driving force behind rising costs is no doubt that NC has no time limit on “permanent total” workers’ compensation benefits, which happens to be the one category of claims that has seen an increase in frequency in recent years. This is also often the most expensive type of claim.
Do the Workers’ Comp Pieces Comprise a Sensible Picture?
What do these statistics mean? They mean that our state’s employers are implementing safety measures resulting in fewer injury claims, but are not realizing corresponding cost savings that are being seen in other states across the country.
The most significant systemic cost driver for workers’ compensation is the fact that North Carolina does not have a time limit for permanent total disability benefits like most other states, resulting in employers’ liability being unlimited in scope. States around us such as South Carolina, Virginia and Tennessee all put a cap on how long an injured worker is entitled to receive benefits, meaning that North Carolina’s system is comparatively more expensive when it comes to injured workers who don’t return to work. In fact, in North Carolina, an employee can be injured the day before retirement, or even the day that he/she is due to retire, and can receive workers’ compensation benefits from our state’s system for the rest of his/her life.
Systemic Problems Cause Rates to Rise
The NC Department of Insurance has raised workers’ compensation rates for the last three years in a row. Three consecutive years of rate increases add up. Systemic cost drivers, such as “lifetime benefits,” along with other factors such as rising healthcare costs, contribute to higher rates, presenting a significant competitive disadvantage for NC employers.
No Meaningful NC Reform in 15 Years
Numerous states across the country have passed comprehensive workers’ compensation reform packages, aimed at benefitting both employers and employees by making their systems more efficient, sustainable, less burdensome and less open to exploitation. Our state’s last significant workers’ compensation reform was undertaken 15 years ago – in 1993! Specifically, nearly half of all states have implemented caps on how long an injured worker is entitled to receive workers’ compensation benefits – something NC does not have but desperately needs. This is a common-sense reform that would go a long way toward modernizing and strengthening NC’s workers’ compensation system, yet it still hasn’t happened.
Reform bills have been submitted in recent years to try to change the most egregious parts of our state’s system that are most responsible for driving up costs and undermining fairness and reason. For example, in 2005 an employer coalition led by our Chamber pushed for meaningful workers’ compensation reform in the NC General Assembly. Not surprisingly, the major component of proposed reform legislation recommended capping benefits for both partial and total disability at 500 weeks from the date of injury. When the bill was presented it met strong opposition from lawyers and union leaders (NC Academy of Trial Lawyers and unions, including the AFL-CIO), however, and capping benefits was ultimately left undone.
Systemic reform is necessary in our state to bring our workers’ compensation program back to its original purpose – a true insurance plan, which mitigates risks for employers, provides fair and reliable benefits for injured workers and contributes to a stable and competitive business climate that continues to attract and grow good jobs for all North Carolinians. Our Chamber looks forward to working with state leaders and lawmakers, employers and other pro-jobs allies in the months ahead toward comprehensive reform of NC’s workers’ compensation system to reduce inefficiencies and exploitation, prevent work-related injuries, preserve and enhance worker benefits, return employees to work who are able, and ultimately reduce costs and bolster the system for those it was intended to help. Employers and employees alike stand to gain from a system that is fair, reasonable and stable.
Read more in the June 2008 issue of NC Magazine
Visit NC Magazine online at www.ncmagazine.com to learn more about NC’s workers’ compensation system, and why it’s failing employers and employees from experts across the state (page 36 in the June issue which can be downloaded from the Web site).
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