Rates Back On The Upward Track
Can it really be that, four years after sweeping reform of workers’ comp,
insurance rates are going up? In October, the National Council for Compensation Insurance,
the group that reviews Florida’s workers’ comp system and recommends rates,
recommended a 15.3 percent rate increase, which was later revised to 13.1 percent.
Politicians would have you believe the problem rests with insurance companies. They are
wrong.
According to the Department of Labor and Employment Security, the number of workplace
injuries that cause employees to miss time from work is actually on the decline. The
problem, simply put, is that there are fewer injuries but they cost more.
A return to upward trending medical costs is one culprit. The 1993 reforms brought some
savings by introducing managed care into the system. Managed care alone, however, cannot
fully contain medical inflation and costly advances in medical technology forever. And the
workers’ comp system is not alone in this trend. Inflation is hitting all areas of
the health insurance field, with most analysts predicting health care costs will rise
sharply over the next several years. Trial lawyers also drive up medical costs by
manipulating the system, requesting additional referrals to specialists, second and third
opinions, expert witness fees, etc.
In addition to medical expenses, litigation results in unnecessary increases in
administrative, legal, and benefit costs throughout the system. Measures in the 1993
reforms to reduce the need for attorney involvement have not worked. Litigation has not
decreased, but increased over the last several years. Government statistics show a
continued increase in attorney fees.
One final major cost driver is permanent and total disability. The number of permanent
total awards per 100,000 workers in Florida, prior to the enacted reforms, was second in
the nation and more than three times the national average. This is not because Florida is
a dangerous place to work, but rather because of how workers’ comp judges define
permanent and total disability.
In 1993, lawmakers tried to restrict lifetime permanent total benefits to catastrophic
cases of true total disability. They have been ignored. As a matter of fact, state
statistics show that the number of permanent total awards continues to steadily increase
despite the 1993 reforms. This of course, also drives medical costs as many, if not most,
medical problems arising after an award of permanent total disability will be either fully
attributable to, or an aggravation caused by, the original industrial accident. Payment of
those benefits should be reserved to those who are truly catastrophically disabled, and
not
for those with wily lawyers.
These cost drivers are emerging in insurance company statistics. Without legislative
remedies, employers can expect a return to annual rate hikes. Associated Industries of
Florida will be proposing legislative changes to address these issues, among others, while
at the same time attempting to increase benefits to the truly injured worker without
increasing costs to the employer.
While politically palatable, keeping rates artificially low is not the way to attack
this problem. Squeezing insurers out of the market will just make workers’ comp
insurance more expensive and harder to get. Pruning back wasteful litigation and
unjustified awards of permanent and total benefits is the only way to bring genuine and
lasting savings to the system.
Frank T. White is executive vice president and COO for Associated Industries
Insurance Services, Inc.
Nov/Dec 1998 -- Florida Business Insight, PO Box 784, Tallahassee, Fl 32302,
(850)224-7173, insight@aif.com
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