For many years, workers”™ compensation premiums in New York have been among the highest in the nation, contributing substantially to the overall high cost of doing business in the state. However, the recent passage of the Workers”™ Compensation Reform Bill, which went into effect July 15, is finally giving businesses some relief. The bill also aids injured employees by increasing the weekly benefits, satisfying labor as well as business.
“It”™s a very fair compromise,” said Paul Vitale, vice president of government and community relations at The Business Council of Westchester County, based in White Plains. “Both sides realize the system didn”™t work for the worker or business. Anything that brings the cost down is good news. This was the low-hanging fruit, and Gov. (Eliot) Spitzer went right after it. He saw it as an opportunity to reduce cost and help job retention in the state.”
For businesses, the most significant aspect of the bill is the capping of the period in which workers with a permanent partial disability (PPD) receive indemnity payments. Before, New York was one of eight states that had no cap, meaning injured workers who could still work, but at a limited capacity, could receive lifetime benefits. Although such claims made up only 17 percent of the total compensation claims, they accounted for 70 percent of the total costs, according to the New York State Insurance Department.
The bill caps the PPD to a maximum of approximately 10 years. The time period for the indemnity payments is based on a percentage of the individual”™s loss of earning capacity. It will save employers 20.5 percent in premium costs, a collective savings of $1 billion for the state”™s businesses, according to government leaders.
The average duration of PPD benefits under the old system was 17 years, said Hampton Finer, chief economist at the Insurance Department, based in Albany. Under the new bill, that amount will be reduced to six or seven years.
The bill will also realize savings through streamlining of the program”™s assessment costs, according to Finer. These include elimination of the “Second Injury Fund,” which was designed for people with pre-existing conditions. Finer said the fund was created to help support veterans returning from World War II, but had become “overused,” resulting in more claims, higher settlement costs and less attention to risk.
Meanwhile, labor leaders are applauding the bill”™s increases in workers”™ benefits. The minimum benefit increased from $40 to $100 a week. As of July 1, the maximum weekly benefit increased from $400 to $500; it will go up to $550 July 1, 2008, and to $600 one year later. After that, it will be indexed to two-thirds of the state”™s weekly wage.
The bill entails compromises for both business and labor. Mike Elmendorf, state director of the Albany-based National Federation of Independent Business/New York, said the future increases in benefits concerns him for a couple of reasons. First, the statewide average wage is skewed higher by New York City, which puts an unfair burden on upstate businesses. Second, there”™s an element of uncertainty as to how high that number could go. “What labor is getting is more definite than what business is getting,” he said. “As the benefit rates go up, the cost of the system goes up and the premiums go up. We want to make sure the premium savings don”™t get eaten up by the increased benefits.”
Labor representatives don”™t view the bill as a perfect solution, either. Jen Fuentes, coordinator at the Hudson Valley Area Labor Federation, based in Newburgh, said her group was “not thrilled” with the caps on permanent partial disability. But she said the increase in benefits was a welcome change. Before, “the benefit was so low you could be seriously impacted by a workplace injury. You could lose your home. The increase helps a lot, and because it”™s indexed to inflation, a fight doesn”™t need to happen every year” for additional increases.
Fred Couse, president at Fehr Bros., a manufacturer of metal products in Saugerties that employs 50, said his firm pays $40,000 annually in workers”™ compensation insurance, twice as much as what he pays in California, where the firm has a satellite location. Couse said in his view, “raising the payouts on short-term disability” rather than capping the PPD payments would have more of an impact. In 25 years of doing business, he said there had been only one PPD case, which was “a tad on the fraudulent side,” compared with the more common occurrence of people out for six months due to minor injuries.
In addition, “my preference would be to tighten up on the ease with which an individual can get out on disability,” he said. “We had an individual make a claim that he hurt himself and the doctor signed off without seeing him. That shows there”™s a laxness. The system over-errs on the side of the individual.”
The reform bill does address this. According to a press release from Spitzer”™s office, “tough anti-fraud provisions designed to reduce bogus claims and other misconduct” have been added. Other reforms in the bill are speedier resolution of disputes; guidelines to provide more effective medical care at lower cost; new fee schedules and networks for pharmaceutical and durable medical equipment; reducing high drug and equipment charges; and enactment of a diagnostic fee schedule; and networks that reduce the cost of certain medical procedures.
Stewart Strauss, president and CEO of Strauss Paper Co., a distributor of janitorial supplies in Port Chester, said the bill “was a win for the state, companies and employees” and would definitely help make New York more competitive with neighboring states. He said his company pays $100,000 to $125,000 a year in workers”™ comp insurance, which would be substantially less if it were located in Connecticut. “New York state needs to make more changes like this. The government needs to do all it can to make us competitive in the tri-state area.”
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