Reform Retro!

Tax payers should be very concerned about the financial health of our Workers Compensation Insurance Program. Just a few years ago, over half the States in the nation had a publicly run and publicly owned Workers Compensation Insurance program. One after another, nearly all went broke or were either partially or wholly privatized with disastrous consequences for tax payers, employers and employees. The following are just two examples:

 

1995 to 2009: California’s Workers Compensation Fund Problems

 

In 1995, the California Workers Compensation program was partially privatized. California’s Workers Compensation Fund problems began in 1995 when Governor Pete Wilson signed a law deregulating workers compensation insurance rates. The claim was that competition would reduce rates and save taxpayers money. Instead, deregulation and privatization of the Workers Compensation system cost tax payers, employers and employees billions of dollars. The new “open rating” plan set off a period of intense competition among private insurers. Private insurance rates were lower for a couple of year. But as insurance companies consolidated, a monopoly was created and workers compensation rates went through the roof – costing workers and employers BILLIONS of additional dollars -- all of which went into the pockets of some of America’s richest corporations. [1]

 

Initially, private insurers slashed rates to below cost to win increased market share. Because the State Fund maintained adequate rates, many thousands of employers left the State Fund to obtain lower-priced policies from private carriers. But the savings were short-lived.

 

In 1996, Governor Wilson proposed completely  “privatizing” the State Fund. Thankfully, both labor and business leaders denounced privatization, and the governor abandoned this proposal. In 2003, as a result of the severe under-pricing since 1995 spurred by open rating, 28 private carriers either suffered insolvency or stopped writing workers’ compensation policies in California. The State Fund took over the obligations of these bankrupt insurers costing California Tax payers, employers and workers billions of dollars.

 

Currently California Workers Compensation Insurance rates are 166% greater than the national median. California rates are currently the highest in the nation—all due to the deregulation scam and the excessive greed of private for-profit workers compensation insurance agencies.

 

"Today, we have the highest workers' compensation premiums in the country, but benefits paid to injured workers rank near the bottom of all states. Spiraling premium costs hurt small businesses that can’t absorb sharp increases without making drastic cuts elsewhere, like laying off employees or reducing employee benefits." Assemblyman Dario Frommer, The Los Angeles Times, 9/22/2003

 

Now facing financial troubles, related to being forced to pick up the losses from bankrupt private insurance companies, the State Workers Comp Fund is instituting sharp rate increases to avoid insolvency. Other workers' compensation insurers have begun to limit writing new California business for fear they will become responsible for bailing out the State Fund. As a result of the market turmoil, workers' compensation premiums have nearly doubled in the past three years in California.

 

Unfortunately, the issue of privatizing the Workers Compensation Fund has not gone away.

In May, 2009, the Governor of California proposed selling the assets of the California Workers Compensation Fund in order to balance the State budget. The Workers Compensation Board has opposed the proposal as being shortsighted. [2]

 

1995 to 2009: West Virginia’s Workers Compensation Fund problems [3]

 

In 1995, faced with a mounting Workers' Compensation Fund deficit, the West Virginia state Legislature made it much harder for injured workers to qualify for lifetime "permanent total disability" awards, often called "PTD awards." Lawmakers and Gov. Gaston Caperton saw the Workers' Compensation Fund crumbling around them. Today, it would take $2.2 billion in the bank to pay for the fund's "unfunded liability" or long term obligations the fund has to pay toward benefits and medical costs for workers who are already injured. That deficit is almost as much as the state's entire General Revenue Fund, which was $2.4 billion in 2002.

The deficit has many causes:

* For years, the Workers' Compensation Fund failed to collect premiums from employers, especially mining companies, amounting to hundreds of millions of dollars in losses.

* Workers' Comp officials also misclassified some employers into lower "risk classifications," which often meant significant drops in premium payments.

 

Now the question becomes: Who will pay the bill for these long term claims?

 

"The only way you could bail out the fund, if we hadn't straightened it out, would be by raising rates so high as to make West Virginia uncompetitive with the rest of country… Or, we would have to raise taxes on the public for sins of the past," Governor Caperton said.

 

Explanations about how Workers' Compensation fell into debt, and proposals about how to pay off that debt, get complicated. West Virginia has a big share of dangerous industries: coal mines, steel mills, chemical plants and glass factories. During this century, West Virginia's mines killed 20,246 and injured nearly 500,000. Thousands more slowly suffocated to death from black lung disease.

 

For years, the Workers' Compensation system paid a pittance, or nothing at all, for workers destroyed in the mines, mills and factories. In 1974, state lawmakers required almost all employers to participate in the Workers' Compensation Fund and increased benefits to workers.

Between 1973 and 1993, five state Supreme Court rulings made it easier for injured workers to collect benefits. Jay Rockefeller, governor from 1977 to 1985, increased employer premiums to solve short-term revenue problems. But revenues were never sufficient to cover future obligations to injured workers. After Moore won his third term as governor in 1984, he cut compensation premiums by 30 percent for major industries, including coal, construction, steel and glassmaking. Moore's rate cut cost the fund $570 million in lost premiums and interest, according to a 1996 report from Employment Programs Commissioner Andy Richardson. The report said the fund paid out $103 million more than it collected during Moore's term.

 

"With wages and medical benefits increasing, how could you cut revenues and expect to survive?" Lewis asked. Moore made other deals, too. He allowed dozens of underfinanced companies, particularly coal companies, to become self-insured and stop paying premiums. When those companies collapsed, other state employers got the bill.

 

Caperton recalled problems he faced after defeating Moore. The Workers' Compensation Fund was near bankruptcy. House Judiciary Committee Chair Rick Staton, D-Wyoming, and other legislators now fear too much of the burden might fall on workers, especially if delinquent and unsafe employers get off the hook.

 

On July 1, 2008, West Virginia moved to a private, for-profit open market workers compensation insurance system. It is likely they will follow in California’s footsteps.