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State-by-state influence of workers' compensation.

Employers report that it is more troublesome to manage workers' compensation injuries in states where workers' compensation expenses are higher. Whether they take this into account when making business location decisions, however, is not clear. But in a time of economic stress, the huge variances among states cannot be ignored by corporations, insurers and politicians.

High average costs are concentrated in California, Delaware, Florida, New York, Texas and West Virginia. According to Bohemia, New York-based Actuarial and Technical Solutions, assuming that the same manufacturing workforce operates in California and Arizona, the workers' compensation premium bill would be 7 percent of the payroll in California, compared to 1 percent across the state border.

West Virginia, which may be the highest-cost state, also has chronically under priced premiums for its monopolistic state fund. Time-discounted accumulated claims liability is roughly four times the financial assets of the fund, which today approaches collapse. In California and Florida, lost time claims are averaging about $50,000--more than twice that of other states. And the growth of claims costs in California, Florida, New York and Texas amounts to roughly half the county's claims reserve development in recent years.

High-cost states also impact workers' compliance with medical care and return to work. When asked about their experience, workers' compensation specialists at three well-known manufacturers said that during the first post-injury weeks, compliance is about equal across all states, even better in high-cost states that allow more employer direction early in a claim. After about a month, however, their ability to induce employees to comply usually significantly declines in high-cost states.

Libby Child, a consultant who developed disability management programs at Grand Rapids, Michigan-based Steelcase, sees nationwide and regional factors closing the window to employer influence over injuries. "In tougher states there are statutory and cultural factors which sometimes impact an employer's success," she says.

Workers' compensation specialists are of mixed opinions about handicapping managers in high-cost states. One would maintain identical safety and injury goals across the country. Another prefers to customize goals by state. A third would publish uniform goals but recognizes the special challenges of some states.


A recent state by-state study by the Massachusetts Taxpayers Foundation reveals that workers' compensation is central to a state's relative ranking in business costs. The national average (net cost to employer) for health, unemployment insurance and workers' compensation is about $3,100 per worker. California is relatively high at $3,545; a number of states are below $2,500. The largest variance of that amount is not in health plans--the most expensive benefit--but in workers' compensation. Indeed, a state's relative position in workers' compensation costs may be the best barometer of that state's responsiveness to the concerns of the business community. In the context of all state laws and regulations impinging on a company's bottom line, workers' compensation is the cost driver most adaptable to major change in a brief period of time.

For example, in the early nineties, Massachusetts undertook a reform campaign to reduce the relative cost of doing business in the state. It has become a model of how a large industrial state can support its private economy. "The reduction in workers' compensation costs--Massachusetts' greatest success story in its efforts to rein in its high business costs--demonstrates that a concerted reform effort can achieve dramatic results," says Massachusetts Taxpayers Foundation president Michael Widmer.

In contrast, California's and West Virginia's cost of workers' compensation is so high that, in the context of the current fiscal crisis, they challenge the competency of the political leadership in these states. When considering special federal assistance, Washington might ask why these two states should not first put their workers' compensation systems in order.

Peter Rousmaniere is a consultant in workers' compensation and president of Pain Disability Management LLC in Little Rock, Arkansas.
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Title Annotation:End Analysis
Author:Rousmaniere, Peter
Publication:Risk Management
Geographic Code:1USA
Date:Nov 1, 2003
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Next Article:Discovering best practices.

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