Workers' Compensation Policy Institute Study of Studies

7/29/2019 Workers' Compensation Policy Institute Study of Studies

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Different studies, similar results

Multiple national studies point to workers comp

problems in New York State

By Paul Jahn

Executive Summary

Several comprehensive national studies examine the health of workers' compensation

from several different angles. In the case of New York's system, these varied checkups all

lead to the same discouraging diagnosis: New York's workers compensation system

saddles employers with high costs, but this steep investment does not help employeesreturn to work faster than similar workers in many other states. This conclusion is no

surprise: Policymakers and workers compensation experts who evaluate processes and

results in New York State generally reach the same conclusion, which is why there is a

growing chorus of support for new workers' compensation reforms.

The Workers Compensation Policy Institute (WCPI) has completed a thorough review of

these studies. The complex nature of workers compensation lends itself to a variety of

metrics and different perspectives among the researchers. For this reason, critics of any

one study can point to select data that may undermine its conclusion, and policymakers

who regard workers compensation as just one of a broad array of challenges are left

without a sense of clarity.

This report summarizes the findings in five major national studies of the workers

compensation system:

1. 2012 Oregon Workers Compensation Premium Ranking Study, published by the

State of Oregon. This study compares compensation premium rates among the

states.

2. Workers Compensation Benefits Coverage and Costs, published by the NationalAcademy of Social Insurance (NASI). This study looks both at premium dollars

spent and the cost of benefits and self-insurance.


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3. Workers Compensation Assessments 2012, published by the Workers

Compensation Policy Institute. This study compares the assessment (or tax on

premiums) paid by employers to fund the workers compensation system in 32

states.

4. Long Term Use of Opioids published by the Workers Compensation Research

Institute (WCRI). This study examines differences in the use of narcotics among

many states.

5. State Report Cards for Workers Compensation 2012, published by the Work

Loss Data Institute (WLDI). This study is based on Bureau of Labor Statistics

reports on lost time. It grades the state on their ability to return injured workers to

employment.

These studies fall into two main categories. The first three reports focus on costs to

employers or important factors driving those costs. The last two studies focus on

outcomes for injured workers without any focus on cost.

In this "study of studies," the Institute assesses the strengths and weaknesses of each

report, provides a brief analysis of each, and summarizes the findings with respect to

New York State.

Taken individually, all of these reports give an indication of the effectiveness of any

individual state's workers compensation system. Viewed collectively, they paint a clear

picture of both the financial and human cost of on-the-job injuries.

Sadly for New York State, the image is clear.

New York is a very expensive jurisdiction for employers to finance their

workers compensation risk even though these high costs do not produce

strong results for injured employees.


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2012 Oregon Workers Compensation Premium Ranking Study1

http://www.cbs.state.or.us/external/dir/wc_cost/files/report_summary.pdf

Summary:

The Oregon study is probably the most widely distributed and cited of the studies

considered in this analysis. Every two years, Oregon publishes a ranking of the cost of

workers compensation premiums in all 50 states and the District of Columbia. Premium

costs are reported as cost per $100 of payroll. In 2012, the median value was $1.88 per

$100 of payroll. Oregon limits its study to the 50 most common payroll classifications in

Oregon. It also normalizes economic differences by weighting payroll distributions to

2006-2008 Oregon payroll distributions.

Strengths:

The cost of premium is easily articulated and widely understood.

Setting a single standard for payroll distribution allows for accurate apples-to-

apples comparisons despite the broad economic diversity among the states.

Premium rates used by the study are set by rating agencies or the National

Council on Compensation Insurance (NCCI) after close actuarial analysis. As

such, they are the best available projection of long-term costs associated with

workers compensation claims.

Online versions of this biennial report are available dating back to 1994.

Weaknesses:

Normalizing payroll distribution to a national standard, rather than an Oregon-

based standard, would be a better method of comparison.

Individual employers rates will vary substantially from the statewide average

depending on the type of work done in the business.

The study does not attempt to include the costs incurred by self-insured employers

who do not pay premiums.

1 Dotter and Manley: 2012 Oregon Workers Compensation Premium RankingStudy http://www.cbs.state.or.us/external/dir/wc_cost/files/report_summary.pdf


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Except for a few states that are either very inexpensive or quite costly, premiums

tend to be in a tight range around the median cost. States ranked 11th through 38th

are all within 15 percent of the $1.88 median. As a result, substantial changes in

rankings often occur from one report to the next report even though costs do not

change much.

The studys ranking does not consider the impact of higher benefit levels on

premium costs.

The study does not consider the fact that insurance carriers may change manual

rates, either discounting them or charging higher rates, based on individual

underwriting decisions.

Analysis:

Cost of benefits will always be an important factor in attracting businesses to a given

state. In challenging economic times, cost considerations become even more important asstates compete for, and struggle to retain, businesses.

Oregon has provided a reasonable, long-standing benchmark for the country as a whole,

but it has done so in a way that serves its own interest. Over the last several reports, it has

ranked between 39th and 42nd in the state rankings, 16 to 17 percent below the national

median. Scratching beneath the surface, one finds that the maximum weekly wage benefit

in Oregon is $841.26, a benefit that is adjusted annually based on statewide wage data.

Oregon is probably happy to share this report with businesses because the report indicates

that Oregon provides reasonable benefits at lower-than-average costs.

The reliance on Oregon payroll distribution to normalize the study does not invalidate the

study as a national benchmark. The key in establishing benchmarks is to use a uniform

standard, which Oregon does. A study such as Oregons, which regularly tracks to a

uniform standard over time, also allows an individual state to track key trends over time,

including the state's national ranking and the relationship of its premiums to the national

median. Even if a new study using national payroll data were published, the longevity of

the Oregon study would still make it the most useful tool available to track premium

costs.

It should be noted that while this benchmark is a very useful tool in evaluating costs

among the states, employers should also consider benefit levels and whether discounts off

manual rates are readily available as part of their individual due diligence.


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New Yorks performance:

New York does rather poorly when the Oregon benchmark is applied to its premium

rates.

New York has the fifth-highest costs in the nation, up from 13th in 2010, 19th in 2008, and

10th in 2006. Currently, New York employers are charged 150 percent of the national

average when they are charged undiscounted manual rates.

New Yorks costs are not necessarily tied to unusually high benefit levels. In 2006, the

maximum benefit level had been frozen at $400 per week for many years and was among

the lowest in the nation. Benefits began to increase as a result of a reform package.

Despite the increased benefits, actuaries who set rates at the time assumed that savings in

the reform would allow premium rates to be lowered by 20 percent. However, because

savings have been slow to emerge since 2007, costs have increased.

Currently, New York pays a maximum weekly benefit of $792.07. That is within the

mainstream of benefits paid by other states, but it is less than such low-cost states as

Oregon and Massachusetts.

Workers Compensation Benefits Coverage and Cost: 20102

http://www.nasi.org/sites/default/files/research/NASI_Workers_Comp_2010.pdf?

Summary:

The National Academy of Social Insurance (NASI) produces an annual report analyzing

workers compensation costs and benefits for the states and federal government. The

most recent report tracks data for 2010; it was released in August of 2012. This report

includes data from self-insured entities as well as employers who buy insurance. Like the

Oregon study, the report evaluates states by using payroll as a benchmark. Unlike the

Oregon study, this report makes no attempt to normalize economic differences among the

states. Instead, it is adetailed examination of how workers compensation benefits are

allocated in diverse jurisdictions and systems.

2Sengupta,Reno,BurtonandBaldwin:WorkersCompensationBenefitsCoverageandCost:2010

http://www.nasi.org/sites/default/files/research/NASI_Workers_Comp_2010.pdf?


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Strengths:

The report is extremely detailed and is a useful tool taking an in-depth look at

workers compensation in the United States.

Benchmarking is best done by comparing trends in individual states to the

national average and this report does that.

This report is a more complete analysis as it gathers data from a variety of sourcesrather than focusing exclusively on one area or group that buys workerscompensation insurance.

Versions of this report that are available online cover data that dates back to 1994

data. That information was released in the fall of 1997.

Weaknesses:

The report is both comprehensive and dense. For example, it does not rank stateson a single, easily scanned page. Instead, the report uses many different criteria

and comparison points. For these reasons, this report is harder to understand than,

for example, the Oregon report.

The report does not normalize economic differences among the states. It also

provides no data on variations in payroll classifications among the states. For

these reasons, direct comparisons are less useful than in the Oregon study.

The report evaluates states by looking at a combination of premiums and self-insured

payments for benefits. However, premiums will seem lower when they are looked at in a

single point of time. This is because premiums must be high enough to cover present andfuture costs of a claim while self-insured payments are only for immediate ongoing costs.

Analysis:

Unlike the Oregon report, the NASI report does not intend to explicitly rank the states.

Instead, it provides an almost encyclopedic collection of data that can be used to establish

benchmarks against national averages and trends for individual states.

The report captures and quantifies paid data from self-insurers, private carriers, special

funds, and the federal government. Using this report, it is possible todetermine not only

the percentage of compensation costs as a percent of payroll, but also the cost ofbenefits,


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expenses, medical benefits, cases involving permanency and death, and cases involving

temporary benefits.

The depth of the data makes this report a very useful tool for anyone seeking to establish

benchmarks for their individual programs performance.

The report confirms the broadest conclusion of the Oregon study: Nationally, as a

percentage of payrolls, workers compensation costs have been declining for the last

decade.

New Yorks performance:

Two important conclusions about compensation costs in New York can be drawn from

this study:

New York's compensation costs are going up while national costs are decreasing.

Compared to other states, a significantly higher percentage of dollars in New

York's compensation system go to expenses rather than benefits.

For many years, New York's benefit costs were lower than average. This was due in large

part to the fact that indemnity benefits in New York were frozen at a maximum rate of

$400 per week from 1992 to 2007. The reform act of 2007 increased the maximum

benefit rate. Since then, costs in New York began to increase. In fact, they rose $.17 per

$100 of payroll since 2006 while national costs remained unchanged.

New York also devotes a larger share of its total workers compensation costs to cover

expenses within the system.Nationally, employers' total cost of workers compensation is

120 percent of the cost of benefits paid to injured workers. In New York, the total cost of

workers compensation is 126 percent of the cost of benefits, which is 30 percent higher

than average. These high expenses clearly contribute to the very high overall costs paid

by New York employers identified in the Oregon study.

New York does appear to have better control of medical costs than other states.

Nationally, medical costs make up 47.8 percent of workers compensationbenefits paid.

In New York, medical costs are 37.2 percent of benefits. This would be excellent news

if injured employees in New York could expect outcomes from their injuries that were

comparable to or better than other states'. They cannot.Another study performed by


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theWork Loss Data Institute suggests that outcomes in New York are among the worst in

the nation.

Workers Compensation Assessments 20123http://www.wcpinstitute.org/news-

reports/workers-compensation-assessments-2012-new-york-remains-the-highest-in-the-

nation

Summary:

Beginning in 2011, the Workers Compensation Policy Institute began publishing an

annual report comparing states' workers' compensation assessments.

For all practical purposes, assessments are a tax on premium. Thirty-two states use this

tax to cover the cost of administering and regulating workers compensation carrierswithin the states. For the most part, the assessment surcharge is negligible when

compared with the expense of premium used to fund losses. The first Workers

Compensation Policy Institute study showed that the average assessment was below five

percent of premium in 2011. A year later, the Institute's study showed the average

assessment was below four percent in 2012.

Strengths:

This study provides a benchmark of a key expense employers must pay beyond

the costs of losses.

Differences in expense rates help explain why some states may have high overall

costs while providing average or low benefits.

The study identifies a potential area for cost-savings reform that will not directly

affect benefit levels in high-cost states such as New York and Minnesota.

3Jahn,StickleandMorris:WorkersCompensationAssessments2012

http://www.wcpinstitute.org/newsreports/workerscompensationassessments2012newyorkremains

thehighestinthenation


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Weaknesses:

The study is too new to help analyze trends in nationwide costs.

The study does not account for how each jurisdiction chooses to allocate the funds

raised by assessments. It merely quantifies the cost to employers.

The study does not attempt to compare all expenses incurred in managing

workers compensation. Rather it focuses on a single expense charged in most

jurisdictions.

Analysis:

Over the years, very few studies of workers compensation costs have examined the cost

of maintaining the workers compensation system.

Generally, studies that look at costs and identify potential areas of savings have focusedon either the effectiveness of return-to-work programs or the potential to control medical

costs.

The Oregon study offers workers' compensation analysts a powerful benefit: It has

established both a reasonable expectation of average premium costs ($2 per $100 of

payroll) and a means of tracking trends both nationally and in individual jurisdictions.

Because the Institutes assessment study is repeated annually, it should provide the same

rough benchmark of the cost of managing each jurisdictions system.

New Yorks Performance

New York had by far the highest assessments in the country.

In the two years of the study, assessments in New York were 20.2 percent and 18.8

percent respectively. This is nearly five times the national average and more than twice as

high as the next highest state, Minnesota.

Fully three quarters of New Yorks assessment tax is used to fund two Special Funds.


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The Special Disability Fund, sometimes known as the Second Injury Fund, is closed to

new claims, but it still receives half of all funds generated by assessments.4 It is by far the

largest such fund in the nation. It was originally intended to provide an incentive to

employers to hire and retain permanently disabled employees. It did that by assuming

responsibility for compensation costs after 260 weeks of payments.

But the state never intended to fully fund the liabilities assumed by the Second Injury

Fund. Instead, assessments are intended to pay only the current years claim costs. This

has effectively eliminated any benefit to employers because they now pay premiums

based on claims which are not subject to the funds benefits and are taxed to pay the

funds ongoing liabilities. New businesses in New York are particularly disadvantaged

since they may not have been in existence when the fund provided a benefit but they

must still help bear its costs by paying assessments.

The New York Compensation Insurance Rating Board (NYCIRB), New York's rate-setting entity, calls the second special fund the Reopened Case Fund. This fund received

28 percent of all assessments.5 It takes over payment and administration of claims which

are more than seven years old and which have not had an award or claim for lost wages

for three years. This type of claim is relatively rare, but such claims usually have high

costs. New York is the only state that has such a fund which means this particular

expense is unique. In his latest budget, Governor Cuomo proposes eliminating this fund

in January 2014. The last assessment for this fund alone was 4.9 percent of premium,

more than the national average for assessments for all purposes.

Given the much higher-than-average administrative costs in the New York system, NewYork will struggle to provide even average benefits without costs that are much greater

than average. Assessment reduction is a ripe target for reform.

4Almar:RC2307,July23rd,2012http://www.nycirblib.org/rcb/rcb/rc2307.pdf

5Almar:RC2307,July23rd,2012http://www.nycirblib.org/rcb/rcb/rc2307.pdf


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Long Term Use of Opioids6http://www.wcrinet.org/studies/public/books/longer-

term_use_of_opioids_book.html

Summary:

The Workers Compensation Research Institute (WCRI) of Cambridge, Massachusetts,

published a 2012 paper on costs of long-term opioid use in the workers' compensation

system. Unlike many WCRI studies, it includes data from New York State.

Long-term use is defined as use by individuals who received an initial prescription for

pain medication within three months of their injury and who made three or more visits for

narcotic prescriptions between the seventh and twelfth month after injury.

The study notes the correlation between the increase of narcotics use in workers

compensation claims and the broader public health concerns about the use of prescriptiondrugs.

Strengths:

This study focuses more on outcomes than on costs. The goal of any treatment

plan is for treatment to end in a reasonable time and for patients to recover.

Longer-term use of habit-forming drugs is not a good outcome.

The studys goal is to provide policymakers with data that will lead to more

effective treatment guidelines and presumably better outcomes.

The study is comprehensive. It tracks the sheer volume of claims in which

narcotics are prescribed. It also tracks duration of treatment. And it takes note of

claims in which initial prescriptions were delayed.

The study notes whether treatment is increasing or decreasing in individual

jurisdictions.

6Wang,HashimotoandMueller:LongTermUseofOpioidshttp://www.wcrinet.org/studies/public/books/longerterm_use_of_opioids_book.html


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Weaknesses:

The study focuses on a single outcome of just one portion of the workers

compensation system.

The study is not as comprehensive as other benchmarking studies done by WCRI

and the other reports summarized in this paper as part of its Compscope series

of benchmarks. i

Some jurisdictions enacted significant new regulations covering prescription

narcotics after this study was completed. For this reason, the results in this study

may not reflect current practice.

The study concedes that the 24-month timeframe used to establish measures may

not be sufficient.

Analysis:

The extent to which Americans rely on pharmaceuticals to treat pain is a problem that

reaches well beyond the workers compensation arena.

In workers compensation, the problem is compounded by the fact that narcotics are

made available without any co-payment. For this reason, more expensive drugs are often

prescribed. In some cases, the narcotics prescribed for, say, a back-injury is one

recommended by its manufacturer for much heavier duty: end-of-life management of

cancer pain. As a result, the use of strong and potentially addictive painkillers has

become a medical cost driver.

In addition to financial cost, long-term use of narcotics also has a high human cost. The

use of narcotics is a hindrance to a return to employment and can result in dependency

problems if prescribed for too long.

The report also provides an analysis of both the effectiveness and utilization of medical

treatment guidelines that various jurisdictions have enacted to rein in this problem. It

notes that Texas appears to be having some success with stringent guidelines put into

place near the end of the reporting period.

The report contains an extremely useful summary of the various treatment guidelines

currently in place. It is a useful document for policymakers looking to design a best

practice set of guidelines.


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Data in Table A (which appears on page 9 of the report) indicates that recommended

courses of care (urine testing and treatment by specialists in physical medicine) are being

more widely used. However, recommended psychological evaluations and reports remain

relatively rare.

The treatment guidelines are emerging as policymakers reform Prescription Drug

Monitoring Programs (PDMP) to change the emphasis from abuse and diversion to a

broadened perspective that also includes proper utilization. The guidelines are still fairly

new, and the WCRI feels that more time is needed to evaluate their effectiveness.

Overall, the report finds that compliance with treatment guidelines is low but beginning

to improve.


The key metric used in this report was the percentage of claims with long-term use of

narcotics. New York and Louisiana were the two states with the highest percentage of

long-term narcotic use. New York also saw the greatest increase in the percentage of

long-term users identified by the study.

New Yorks dismal workers compensation results did not occur in a vacuum. While this

report was being published, the state instituted the Internet System for Tracking Over-

Prescribing Act (I-STOP). This mandates that prescribing physicians check the PDMP

before prescribing opioids. Since this reform was not in place during the study, it is too

soon to tell whether it has had an effect on workers compensation prescribing.

Workers compensation reforms passed in 2007 called for comprehensive treatment

guidelines in New York State. While regulators have issued guidelines for some specific

types of injury, guidelines for pain management and prescription drugs are not yet in

effect. Given the poor results in New York documented in this report, such guidelines

appear to be sorely needed.


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State Report Cards for Workers Compensation 2012ii

http://www.worklossdata.com/PR_SRC2012.htm

Summary:

Since 2000, The Work Loss Data Institute (WLDI) published five report cards that track

the outcomes of injuries among the states. The WLDI reviews data compiled by the

Occupational Health and Safety Administration (OSHA) and issues a letter grade for each

state.

WLDI looks at five separate criteria: incidence rates; cases missing work; median

disability durations; delayed recovery rate; and key condition: low back.

The report assigns a letter grade ranging from A to F based on relative outcomes among

the states. In the more recent studies, trends have also been taken into account, and eachstate is assigned to a Tier ranging from I (Grade B+ to A with a positive or flat trend) to

VI (Grade D- to F with a negative or flat trend).

Strengths:

The report focuses on outcomes rather than costs.

The report uses a simple letter grade to rank the states.

The report identifies and quantifies clear trends based on its long history.

The report includes outcomes from self-insured entities.

Weaknesses:

OSHA and compensation payers use different data to track lost-time cases.

The Bureau of Labor Statistics data that are the basis of the report have not been

audited. There could be some variation in information gathered between the

states.

The report is not based on current data and does not track outcomes subsequent to

2009.

Only 44 jurisdictions participated in the 2009 Survey of Occupational Injuries andIllnesses, which is the key source for the report. Ten states did not participate and

do not have current data.

The report does not touch on medical costs or treatment parameters.


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Analysis:

In many respects, the WLDI report card is an ideal companion piece to the Oregon study

on premium costs.

The focus on injury outcomes removes some of the inevitable controversy that can

surround a report that focuses exclusively on costs. While there is generally some

correlation between lower costs and better outcomes, the two issues are not necessarily

identical.

For example, one of the best-performing states according to the WLDI is Minnesota.

Minnesota ranks 18th highest in the Oregon study with overall costs at 108 percent of the

national average. On the other hand, Massachusetts, which had very low costs, has

consistently fared poorly when studied under WLDIs microscope.

Relying on OSHA data allows the WLDI to gather information in a single format from

the widest possible spectrum of employers. Both insured and self-insured employers have

the same OSHA reporting requirements. The information gathered by OSHA differs from

that compiled in the workers compensation arena in that OSHA does not require

employers to track lost time cases that run into a second year. As a result, states such as

New York that have a high number of delayed-recovery cases may be doing somewhat

worse than the report card indicates.

While WLDI has not audited the national statistics it uses to produce this report, there is

some correlation between outcomes and costs. High-cost states tend to have moreprolonged disability; lower-cost and mainstream states tend to have better outcomes.

Reformers in consistently poorly performing states may have an easier time forging a

consensus among business and labor interests based on the outcomes described in this

report. Fewer accidents resulting in less time lost from work is hardly a controversial

goal.


According to the WLDI, New York has a consistent history of Fs and is once again

last place for 2009.iii


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The report notes that Incidence Rates are only slightly worse than average but indicates

that both Cases Missing Work and Delayed Recovery Rates are terrible. This is

particularly troubling given the fact that OSHA reports do not follow injuries once the

year ends. New Yorks problems may well be worse than this report indicates.

Furthermore, the WLDI sees little hope of improvement based on the trends in New

York. Only New York and Kentucky share the distinction of being in Tier VI with a

grade of D- or worse and a negative or flat trend.

Paul Jahn is the executive director for the Workers Compensation Policy Institute and has

nearly 30 years of experience in the workers compensation field.

The Workers Compensation Policy Institute is a think tank that examines how the workers comp

system influences local taxes and services. The Institute focuses on nonpartisan policy research,

issues and ideas pertaining to workers' compensation policy in New York State, especially on how

these policy issues affect public entities and New Yorks taxpayers. The Institute conducts

surveys, analyzes data, evaluates workers' compensation issues, and thinks outside of the box

to develop insights to share with municipal leaders, policy makers, journalists, and other opinion

leaders. The Institute seeks to establish itself as the foremost expert in New York State on public

entity workers' compensation.

The Institute is a nonprofit organization, governed by a Board of Directors comprised of New

York State municipal leaders, and counseled by an Advisory Board which includes workers comp

and municipal experts both within New York State and in the national arena. The Institute is a

research affiliate of PERMA.

2013 Workers Compensation Policy Institute

i WCRI publishes a series of excellent benchmarking studies called the Compscope series. New York did

not provide data for any of these studies which made the Opioid study the best WCRI report to include in

this paper.

ii

Work Loss Data Institute: State Report Cards for Workers Compensation 2012http://www.worklossdata.com/PR_SRC2012.htm

iii Work Loss Data Institute: State Report Cards for Workers Compensation 2012 (pg. 45)

Workers' Compensation Policy Institute Study of Studies

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