This was the fastest drafting and passage of major state workers' compensation reform in living memory. A latter-day Napoleon triumphed with lightning speed, and just as quickly came to ruin. Timing was critical. Reform of this ambitious scope would not have been as easy a few months later, when Spitzer's preening arrogance began to create powerful enemies.
Originally, the governor's office predicted premium reductions of at least 10 percent as a result of the reforms.Contributing most to this prediction were tighter limits on permanent disability awards.
A year later, we may find no significant reduction in premium due expressly to the reform itself. It's more likely that reductions will come as a result of the general softening of the workers' comp market resulting from insurer profits.
A March, 2008 report from the New York Insurance Department, mandated by the reform law, says that only 29 percent of indemnity claimants see their first check within three weeks. The average time to resolve an appeal in 2007 was 5.6 months.
Two aspects of New York's system--a low medical fee schedule being one--were likely responsible for preventing New York from being one of the sky-high-cost states, rather than its current status of being moderately more expensive than average.
As to the second aspect, insurers have been, in effect, pushing into the future massive amounts of incurred claims costs. They did it through the second-injury fund.
Premiums in the future will have to bear the load of working off an $18 billion to $23 billion deficit in the fund, which the reform law shut down, following a pattern across the country of closing these funds. Compare this liability with the total annual cost of workers' comp of $5.5 billion.
Insurers had grown accustomed to filing second-injury fund applications for about everything that moved.I heard of a mental-stress claim of a World Trade Center recovery worker that the insurer asserted arose from a prior shoulder injury, not from seeing dead bodies.
By getting the fund to pick up the claims, insurers erased reserve liabilities from their books. They paid annual assessments from the fund, but these assessments were calculated merely at the cash needed to pay immediate demands, not on the total estimated value of the claims being assumed. A huge tail of future obligations grew.
In at least one area, the reform law created a major headache by placing the state fund--the State Insurance Fund, or SIF--in charge of managing claims after they receive permanent awards. When an insurer makes a permanent award, it transfers in cash the full actuarial estimate of future benefits to a previously obscure trust that the state fund manages. This rule does not apply to self-insured employers, nor does it apply to SIF.
In contrast, data collection and analysis of workers' claims will be greatly improved. The state can look for models to the California Workers' Compensation Institute and the Workers Compensation Research Institute.
Spitzer's legacy is not a complete, or even satisfactory, solution to New York's workers' comp problems. But he gave reform traction.
PETER ROUSMANIERE is a Vermont-based columnist for Risk & Insurance®.
April 15, 2008
Copyright 2008© LRP Publications