The Real Reason Behind Higher Workers’ Comp Premiums
Business owners and employees have the right to complain about rising workers’ compensation insurance premiums. Both should demand answers in order to solve the problem.
However, one must be told the facts, not misleading information or fear tactics. It’s time the business community understands that the real culprit behind this “crisis” is unregulated insurance company profits.
Here’s what we know: The benefits paid to injured workers are not driving up costs. Benefits to injured workers are limited by law. While it’s true wages have increased in South Carolina and, therefore, so have weekly benefits, insurance company premiums are based on employer payrolls and have automatically increased to keep up with increased wages.
Costs are not being driven up by attorneys’ fees paid by injured workers. Only the attorneys’ fees paid by insurance companies are charged as a cost to the system and affect premiums. Attorneys’ fees paid by injured workers have no impact on premiums.
The cost of medical treatment has increased and is contributing to increased costs. But medical costs have increased in South Carolina at a rate of only 4.5% a year, lower than the average nationally and in the Southeast.
We all agree fraud in the system must be dealt with severely. Both employers and workers who commit fraud should be punished. The Legislature recently allocated additional funding to the attorney general to investigate and prosecute fraud.
The sad fact is many employers cheat on employee classifications to pay cheaper premiums, such as misidentifying an employee as a clerical worker when the employee is actually a welder. A recent test audit revealed South Carolina has a 100% higher error rate than other states; 54% of the errors were in employee classifications, thereby allowing unscrupulous employers insurance coverage at an unfair cost structure. Fraud hurts everyone, but the insurance companies have done nothing to curb this rampant abuse.
The biggest reason for rising premiums is the unregulated increase in the premium charges insurance companies add on to workers’ medical treatment and weekly benefits. This is called the “loss-cost modifier.” In 2000, for every $1 of premium that insurance companies charged, the loss-cost modifier added an additional 28 cents. By 2006 that charge had skyrocketed by more than 200%. Now, for every $1 of premiums, insurance companies add 83 cents.
While squeezing business for higher and higher premiums, insurance companies have added an additional $200 million to the cost of workers’ compensation. Insurance companies choose the injured worker’s doctor and dictate the medical treatment. They currently pocket 83 cents in profit for every dollar spent, thanks to the loss-cost modifier.
Who protects employers from this? Nobody. The Department of Insurance stopped regulating this practice in 2003. Is it a coincidence that since the State Department of Insurance stopped regulating loss cost modifier that workers’ compensation insurance rates have increased every year? Of course not.
In North Carolina, where loss cost modifiers are regulated and have remained steady, insurance premiums have not escalated, business has flourished, insurance companies have not threatened to stop writing coverage and injured workers get the medical treatment to return to work and the benefits to support their families while they cannot work.
Workers’ compensation is the original “tort reform.” Seventy years ago we made a promise to South Carolina workers and their families to provide a simple, efficient, no-fault system of workers’ compensation for on-the-job injuries.
And the system is simple, efficient and predictable. The system is so simple that 92% of the claims filed with the commission do not involve lawyers; 97.5% of claims are resolved without a contested hearing. A hearing, if you need one, is available in four months, not the years it would take to have a civil trial. The benefits awarded are fixed by law. Nothing is paid for “pain and suffering” and there are no emotional jury verdicts.
Of approximately 87,000 claims filed in 2004-2005, there were less than 200 appeals from the Workers’ Compensation Commission to the circuit court. The decisions of the commission are not out of control. Insurance companies offer misleading information and scare tactics so no one will notice or do anything about their profits. A 200% increase in the loss-cost modifier is unconscionable.
This coming year is not the time for businesses to turn their backs on injured workers and break the promise we made more than 70 years ago. It is the year for businesses to know the truth about why their workers’ compensation premiums have increased. It is the year for businesses to tell insurance companies to do their jobs promptly and efficiently. It is the year for both businesses and employees to tell insurance companies we have had enough of their unregulated and out-of-control profits.
We should ask our Legislature to hold public hearings, demand explanations and study the real reasons behind the rising cost of workers’ compensation insurance premiums. Leaving citizens disabled, destitute and without the means to obtain needed medical care won’t solve the problem. Disabled workers and their families won’t just go away if they are not cared for. They’ll just become burdens on the taxpayers.
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