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Many States Contemplate How to Compensate

Several states made significant changes to their compensation laws this year—and more changes could be on the way.

October 4, 2011
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With employers pushing for relief from the rising costs of workers' compensation insurance in a stagnant economy, several states made significant changes to their compensation laws this year—and more changes could be on the way.

Employers made substantial headway in Montana, Oklahoma and Kansas, which all have business friendly, Republican-controlled legislatures. The measures focused in particular on limiting an employer's obligation to pay for medical treatment of injured workers and tightening eligibility for workers' compensation disability benefits. In Montana, which has the highest workers' compensation rates in the country, costs could be reduced by more than 20 percent in the first year alone.

Lawmakers in Montana "were trying to effectuate fairly major changes to bring costs more in line with the states as a whole," says Trey Gillespie, senior workers' compensation director at the Property Casualty Insurers Association of America.

Illinois and North Carolina also passed workers' compensation legislation but with more equivocal results for employers. Things got so tense in Illinois that at one point the Illinois House voted to eliminate workers' compensation altogether, a move opposed by both business and labor. Gov. Pat Quinn estimated that the final bill would save businesses at least $500 million a year in insurance premiums, but some experts believe further legislation is needed. "Illinois remains a very troubled system," says Bruce Wood, director of workers' compensation at the American Insurance Association.

Such large states as California, Florida and New York have shied away lately from major compensation legislation, but that could change soon—at least on the West Coast. "2012 is a year where there is going to be more of a focus" on workers' compensation in California, predicts Nicole Ganley, spokeswoman for the Association of California Insurance Companies.

Compensation premiums across the country have been mostly flat or in decline, but any savings to employers have been offset by mounting bills for medical treatment. As a percentage of total compensation claims, medical costs rose to 58 percent in 2009 from 46 percent in 1988, according to the National Council on Compensation Insurance Inc. Montana's workers' compensation bill is expected to generate nearly $100 million in savings in its first year, in part by locking in medical provider rates at 2010 levels. The law also provides that medical treatment of injured workers who are not permanently totally disabled may be ended five years from the date of injury.

Kansas, which passed its first significant workers' compensation legislation since 1993, tackled medical costs by allowing employers to terminate their obligation to provide treatment when the employee reaches the point of maximum improvement. The state also tightened eligibility rules, adopting a tougher standard for a compensable injury where work must be the "prevailing factor." But the legislation also increased benefit caps for injured workers who have lost the capacity to work as part of what Gov. Sam Brownback called "a well-thought-out compromise between business and labor."

In Oklahoma, where the new Republican governor, Mary Fallin, campaigned on the need to improve the state's business climate, lawmakers adopted a fee schedule that aims to reduce the cost of medical care by 5 percent.

They also limited when injured workers can switch doctors, which could curb the practice of "doctor-shopping" by claimants in search of a favorable opinion. Cost savings are expected to be around 6.5 percent to 7.5 percent. But the law did not shift the state from a lawsuit-based worker' compensation court system to a system in which administrative law judges handle compensation claims, possibly leaving some unfinished business. "We could see additional reform in 2012" in Oklahoma, Gillespie says. "Employers are not happy with the workers' compensation court system."

In Illinois, the workers' compensation bill that emerged after six months of fractious negotiations slashed the fees paid to doctors and hospitals for treating injured workers by 30 percent. That might provide relief in a state where workers' compensation costs employers $3 billion a year and medical fees are the second-highest in the nation. But Wood says the legislation "fell way short of a meaningful reform," for example by allowing employees to opt out of being treated by a medical provider network.

Looking around the country, Wood isn't sure there will be "what I would call comprehensive" workers' compensation legislation in any state next year. "It's easier to say it's not going to happen," he says. But California could be a big exception. The savings from the state's 2004 legislation have "petered out," Wood notes, and employers are pushing for cost reductions while workers want increased benefits. "There's a significant conflict that could need to be resolved," he says.

In California, the more labor-friendly Jerry Brown has replaced Arnold Schwarzenegger as governor. With Democrats also in control of both houses of the Legislature, Barry Hinden, president of the California Applicants' Attorneys Association, says the labor lobby "may be able to accomplish things that they could not before." But he adds that, "We don't want to overwhelm Jerry with legislation."

On the California employer side, Ganley says she believes that any increase in benefits will have to be offset by cost reductions for employers and that a "one-sided approach" is inadvisable. "Workers' comp is like a balloon," she says. "When you squeeze it at one end, the other side expands."

Gillespie sees Tennessee and Louisiana as other states that could be ripe for workers' compensation changes. In Louisiana, "There's been double-digit growth in all areas of costs in the last couple of years," he says.

Workforce Management, October 2011, pgs. 12-13 -- Subscribe Now!

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