Lowering the Cost-of Doing Business Helps Keep & Create Jobs
Sensible Reform Would Lower Workers’ Compensation Costs

As North Carolina’s economy continues to suffer the effects of a staggering global recession, opportunities to lower costs for employers to protect and create jobs in our state should become priorities.  The North Carolina Chamber is focused on identifying these opportunities for policymakers – particularly where they have little or no (and perhaps even a positive) budget impact.  One of the most significant opportunities lies within our state’s inefficient and costly workers’ compensation system. 

Workers’ compensation in North Carolina used to be a fairly straightforward system.  Over the years, however, decisions by both the legislature and the courts have undermined the original intent and purpose of the system and have added unnecessary cost for employers. One of the most glaring examples – and a driver of what makes workers’ compensation costs in our state higher than in other states – is the fact that there is no limit on how long workers can receive benefits. 

In North Carolina, employees can be injured on the day before retirement, or even the day of, and receive workers’ compensation benefits for the rest of their lives.  This flaw in the system discourages an expeditious return to work, makes for a more costly system and is out-of-step with other states that North Carolina competes with for jobs.      

States around us such as South Carolina, Virginia and Tennessee all have a time limit on how long an injured worker is entitled to receive benefits.  The intent and purpose of workers’ compensation is to provide for the healthcare needs of injured employees, provide those employees with reasonable compensation for lost wages while they recover and return those who are able to work as quickly as possible.  Having no time limit on workers’ compensation benefits is counterproductive and ultimately makes it more costly for employers to cover medical costs and lost wages for all employees.  

Safer Workplaces, Fewer Claims Should Reduce Costs

Workers’ compensation costs in North Carolina are higher for employers than in many other states despite employers’ progress in safety and a reduction in almost all types of claims in a wide variety of jobs.  Improved workplace safety decreases injury claims, which should lower workers’ compensation costs in our state.  Yet, we’re not seeing that in North Carolina. 

In our state, we’re seeing the “cost per claim” go up in the workers’ compensation system.  That means that even with a decrease in injuries, costs are not decreasing.  A significant driver is the fact that there is no time limit on benefits.  Other factors may include rising health care costs, the amount of litigation and the antagonistic nature of the system. 

The lack of limits on the duration of benefits has truly undermined the process of providing for injured employees’ needs and the goal of returning to meaningful employment as soon as possible.  No limits means recovered employees know that benefits continue if disputes drag on – as do their lawyers, who are often receiving as compensation a percentage of what employees receive in benefits for as long as those benefits continue.  As a result, employers are forced to make decisions involving injured-worker claims that can be driven by the desire to minimize the potential for lengthy disputes. 

Needed Reform would Help Struggling Employers

Systemic reform is necessary in our state to bring our workers’ compensation program back to its original purpose – a no-fault system which provides fair and reliable benefits for injured employees, mitigates risks for employers and contributes to a stable and competitive environment that continues to attract and grow good jobs for all North Carolinians.  Numerous states across the country have reformed their workers’ compensation systems, benefiting both employers and employees by making their systems more efficient, sustainable and less susceptible to exploitation.  Our state’s last significant workers’ compensation reform was undertaken more than 16 years ago. 

Specifically, nearly half of all states have implemented caps on how long injured workers are entitled to receive workers’ compensation benefits – something North Carolina does not have but desperately needs.  This is a common-sense reform that would go a long way toward modernizing and strengthening our workers’ compensation system.  In 2005, our state Chamber pushed for a 500-week time limit for workers’ compensation benefits in the N.C. General Assembly (that’s more than 9 ½ years), but trial (plaintiffs’) lawyers and unions mounted an aggressive campaign to thwart any meaningful reform.

Rate Decreases should not be a Roadblock

Even with higher-than-average costs North Carolina’s workers’ compensation insurance rates have been relatively stable in recent years.  In fact, 2008 saw a small decrease in rates and a fairly significant decrease has already been proposed this year (2009). 

Rate decreases may have created a misconception among some state legislators that the North Carolina’s workers’ compensation system is fine and no changes are needed.  In fact, stable rates only mean there’s a stable workers’ compensation market that would leap at the opportunity to offer even lower rates if modernizing changes can be made to the system.

Workers’ compensation rates are based on actual “loss costs” or “loss experience,” which – to put it simply – is the examination of claims against policies and a determination of what is needed in premiums to cover costs.  Recent decreases are due in part to the good work North Carolina employers have done to make workplaces safer for employees and they deserve credit for that.  Meaningful dialogue about our state’s workers’ compensation system should be about the need for greater efficiency and fairness.  Insurance rates are only one of several relevant factors to consider.   

Rate stability – even decreases – do not mean that workers’ compensation costs in our state are not higher for employers than in other states, or higher than average nationally.  It also does not mean that our system is not badly in need of significant changes.  Why not make sensible changes to the system that bring it back in line with its intended purpose and with systems in other states with which we are competing for jobs – especially if those changes result in lower costs and even lower rates? 

Study Bill Authorizes Examination of ‘Duration of Benefits’

Workers’ compensation reform presents a real opportunity where state lawmakers could take action to help North Carolina employers keep and create jobs outside of the state budget without an investment of tax dollars.  Our state Chamber is pleased that a “study bill” was passed during this year’s legislative session that authorizes a study of the duration of benefits in our workers’ compensation system (H1022/S975).  We certainly hope that the study takes place and believe we can make a strong case that meaningful reforms to our system are needed.