Leaders question workers' comp rate projections

by Eric Olson

SBJ Reporter

eolson@sbj.net

The Missouri Department of Insurance is the bearer of good news for employers in 2004: workers' compensation rates should fall as much as 11 percent, by some estimates.

But officials from the Missouri Chamber of Commerce and Industry say they aren't holding their breath.

Based on recommendations by the insurance industry's principal trade group the National Council on Compensation Insurers and a consulting actuary hired by the Missouri Department of Insurance last year, workers' compensation insurance rates are poised to drop anywhere from 1.4 percent to 11.1 percent in 2004.

The positive news for employers is largely due to an 18 percent reduction in workplace injuries over a two-year period, said Randy McConnell, Missouri Department of Insurance spokesperson.

"Management and employees continue to reduce injuries, allowing workers' compensation costs to fall despite rising medical costs to treat injured workers," said Gov. Bob Holden in a press release announcing the expected reductions.

However, the disparity between the 1.4 percent recommended by NCCI and the 11.1 percent indicated by MDI's actuary consultant, is a major point of contention.

"We've seen nothing tangible that's happened in the marketplace to lead to something positive like (significant reductions) happening," said Kelly Gillespie, Missouri Chamber of Commerce and Industry vice president of governmental affairs.

"What we really need is workers' compensation reform as well as increased scrutiny of those people being placed into the positions of administrative law judges and legal advisors. The combination of those two factors will ultimately be what leads to any kind of significant reduction in Missouri's workers' comp costs. That is the methodology that has worked in other states," Gillespie said.

Phone calls to the governor's press office were not returned.

According to the Missouri Division of Workers' Compensation, workplace injuries dropped from 174,726 in fiscal 2001 to 144,025 in 2003. Despite medical inflation being the biggest cost driver for work comp rates, MDI's actuary consultant Ron Hofmann said such a drastic decline in injury claims should prove to benefit employers.

Hofmann's research shows insurance companies could reduce rates by up to 11.1 percent from current levels and still cover expenses and reasonable profit. The NCCI advises companies could drop rates an average of 1.4 percent in 2004, which is a more likely scenario.

"Most of the companies do end up adopting the NCCI figures," McConnell said. "But we're also saying that if companies want to go above that, in terms of the kinds of reductions that they adopt, that the injury rates are certainly supporting that. When you have an 18 percent drop in injury rates over a two-year period, that is a substantial reduction in the risks that an employer has to assume."

McConnell can't recall an injury reduction that large in successive years; it is the greatest two-year drop in number of injuries since 1994 the year after Missouri last reformed its workers' compensation system.

Scott Lakin, MDI's director, said his agency's analysis indicates claims frequency has been falling 5.9 percent a year in Missouri since 1993, while the cost of claims, driven largely by medical expenses, has been rising at 2.3 percent annually. Compared to the eight surrounding states, Missouri has the second-lowest claim frequency, the governor's office reports.

But Missouri also pays out the greatest amount for temporary total disability benefits injuries that are permanent in nature but partial in degree compared to surrounding states, according to NCCI data.

Temporary total disability benefits by state are:

Missouri $662.55 per week;

Oklahoma $528 per week;

Arkansas $453 per week; and

Kansas $440 per week.

Gillespie said that at more than $662 of take-home pay per week, temporary total disability benefits would net an injured worker more than $2,500 per month or more than $34,000 a year.

Too much money is going to work comp cases when the injuries should fall under group health, he said.

"It's going into workers' comp and it's not going into salary increases or other benefit increases that could be passed along to workers," Gillespie said. "You'd really have to be driving a lot of miles in your rig as an over-the-road truck driver in southwest Missouri to get to a take-home pay of $2,500 per month. Therefore, those high TTD benefits are an absolute encouragement for people to push the system and get a favorable ruling from an administrative law judge or a recommendation from a certain doctor that they have a workers' comp claim when perhaps they don't. That is a powerful incentive."

To prevent such favorable rulings, Missouri Chamber officials suggest greater scrutiny of the 28 political appointees serving as administrative law judges.

"They should not be lifetime appointments without review," Gillespie said. "Circuit judges have terms, legislators have term limits; this is not out of the ordinary. Strong term limits for administrative law judges and legal advisors who employers are paying for would only be reasonable."

The state chamber is suggesting four-to-eight year term limits.

Gillespie said legislative reform is needed during this session, which began Jan. 7. Among the proposals would again be a better legal definition of which cases fall into work comp versus group health coverage, he said.

Last year, legislation did not pass to change the law so that the workplace be "the dominant" factor of an injury, versus "a substantial" factor, as the 1993 law reads now.

"A decade has passed, there's been a lot of legal rulings of what a substantial' means, and there's been a liberal eroding of what the legislative intent of that is," Gillespie said.

Also in 1993, the General Assembly enforced deregulation so that MDI no longer set the state rates, allowing the most efficient insurance companies to drive rates down.

MDI research shows companies paid on average 14.7 percent more for work comp insurance in 2003 than in 2002. MDI officials say that spike should be a one-time occurrence, related to insurers' loss of investment revenue and other losses related to 9-11.