N.Y. Gov. Spitzer Announces Workers’ Comp Reform Accord

February 27, 2007

New York Governor Eliot Spitzer and legislative leaders announced an agreement to reform the state’s workers’ compensation system that has the backing of business and labor.

Under the agreement, benefits for injured workers will be increased for the first time in more than a decade, and employer costs, which are among the highest in the nation, will be reduced by 10 to 15 percent with savings to grow over time, according to the plan’s authors.

The plan calls for possible changes in the current Compensation Insurance Rating Board, which helps decide what employers pay for coverage, and directs the state insurance superintendent “to ensure that these system savings are captured in premium rate reductions, beginning in the next rate setting cycle that concludes this July.”

The plan also includes new anti-fraud measures and the closing of the state’s Second Injury Fund, which the backers predict should lead to significant savings.

While politicians, employers and labor praised the plan, insurers appeared concerned whether the savings promised could be realized.

“This is a remarkable win-win situation for both workers and employers,” said Governor Spitzer. “Thanks to the cooperation of legislative leaders and staff, and with constructive input from business and labor, we’ve developed an approach that will achieve the twin goals of helping injured workers and improving the state’s competitiveness.”

Key elements of the reform package as released by Gov. Spitzer’s office are as follows:

The maximum weekly benefit for injured workers will be increased from $400 to $500 in the first year, $550 in the second year, $600 in the third year, and to two-thirds of the average weekly wage in New York in the fourth year. Once the maximum benefit reaches two-thirds of the average weekly wage, the maximum benefit will be indexed annually;

The minimum weekly benefit will be increased from $40 to $100;
Cost savings worth hundreds of millions of dollars will be achieved by setting maximum number of years that a small population of claimants can receive cash benefits. Medical services will continue, however, and a safety net will be established to help these workers return to gainful employment and to intervene in cases of extreme hardship;

Innovative programs are being established to get workers prompt medical treatment and to help them return to work;

Strong anti-fraud measures will be in place, including the ability to stop work on a job site where a company has failed to purchase workers’ compensation insurance for its workers, higher criminal penalties for violators and debarment provisions;

An expensive fund known as the Second Injury Fund that is now financed by assessments passed through to employers will be closed. The fund was initially set up to help injured Word War II veterans, but is now instead used by some insurance carriers as a costly loophole to avoid paying claims; and

The Compensation Insurance Rating Board, which helps determine workers’ comp costs for employers, will sunset as of February 1, 2008. The Superintendent of Insurance will make a recommendation to the State Legislature in September 2007 as to what, if anything, should replace it.

As part of the negotiated reform package, the Governor, and legislative leaders have directed the Superintendent of Insurance to ensure that these system savings are captured in premium rate reductions, beginning in the next rate setting cycle that concludes this July. As the reforms phase in, reductions in premiums and assessments related to the Second Injury Fund are expected to reach double digit levels, providing significant relief to New York’s business community, particularly small employers for whom such costs have been a major impediment.

In addition, the group backing the plan vowed to pursue a number of additional administrative reforms and to make recommendations about additional legislation. These initiatives include data gathering improvements to make the system’s cost more transparent; an expedited hearing process to reduce litigation and speed the time it takes for workers to receive treatment and return to work; and by year-end, new fact-based medical guidelines to replace New York’s current outdated system. In addition, in conjunction with the Workers’ Compensation Board, the Superintendent will design treatment guidelines and training for law judges.

Republicans and Democrats, as well as employer and labor advocates, hailed the accord; while insurers said they wanted to see the details.

“Under this agreement, the weekly benefit for injured workers would be raised significantly and, for the first time in the state’s history, an ongoing maximum benefit rate increase would be indexed and not ever require further action by the Legislature or Governor, a provision the Assembly has long fought for,” said Speaker Sheldon Silver. “With this plan, we strike a balance by establishing a more effective and just compensation system for injured workers while also providing insurance premium savings to employers. By protecting workers and reducing the costs to businesses, this historic agreement establishes a more effective environment for economic development and will spur job creation in the hard-pressed western New York economy and throughout New York State.”

“The agreement on workers compensation reform is a tremendous victory for workers, who will receive increased benefits, and for businesses that will see a significant reduction in premiums,” said Senate Majority Leader Joe Bruno.

“Reform of the State’s Workers’ Compensation system has been one of the most contentious issues facing our stategGovernment,” said State Senate Democratic Leader Malcolm A. Smith. “The fact that both the Business Council of New York State and the AFL-CIO are supportive of the Governor’s proposal speaks volumes about the merits of the agreement. Once again message delivered, message received, action taken.”

“Governor Spitzer deserves a lot of credit for bringing together disparate groups and leaders to agree on a truly significant workers’ compensation reform package,” said Assembly Republican Leader James Tedisco. “The outdated system had long been an impediment to job creation and economic growth, especially in Upstate New York. While much more remains to be done in improving the upstate economic climate, today marks a key turning point toward that goal. The oft-used cliché of ‘New York is open for business’ is appropriate here. This is an important victory.”

Kenneth Adams, president of the Business Council of New York, said: ” This is a major step toward reducing the cost of doing business in New York State. It is a big win for improving our economic climate, especially Upstate.”

Dennis Hughes, president of the AFL-CIO, said labor is “immensely pleased” with the pact. “Labor, business and political leaders joined together to forge an historic agreement for the common good of injured workers, the business community and all New Yorkers. This agreement not only addresses some of the most pressing needs and concerns of injured workers, but immeasurably improves a system long believed to be broken beyond repair,” Hughes added.

Speaking for the American Insurance Association, Gary Henning, AIA assistant vice president, Northeast Region, indciated that carriers are being cautious about whether the plan will produce the savings promised. “We are pleased that the governor and legislative leaders have tackled this important issue, however the devil is always in the details. We need to carefully review this measure so we know exactly how the cost savings will be generated,” Henning said in a statement. “AIA is hopeful that this legislation will result in meaningful cost savings. Injured workers, employers and insurers all benefit from a stable, predictable workers’ compensation system and a competitive marketplace.”

Frank O’Brien, regional manager for the Property Casualty Insurers of America, said his assocation is “pleased to see Gov. Spitzer make this issue a top priority of his administration. The governor and others recognize that the system is not working for injured workers, employers or insurers.”

As for the reforms, PCI said it would comment further after it had a chance to analyze them.

Insurance agents reacted positively to the news. The Independent Insurance Agents & Brokers of New York, Inc. said the accord is a “step in the right direction” but also stopped short of endorsing the entire package before seeing the fine print.

“The plan is bold and forward thinking,” said IIABNY Chair Sharon Emek. “Eliminating such inefficiency as the Second Injury Fund and the Compensation Insurance Rating Board, while limiting the number of years a small population of claimants can receive benefits under permanent partial disability will drive substantial costs out of the system.”

Michael Barrett, IIABNY legislative representative, who was present during the announced agreement, will asist agents in their review of the proposal. “Although the agreement echoes what we have fought for, we look forward to first reviewing and then supporting the legislation,” Barrett stated.

The Professional Insurance Agents of New York State Inc. applauded the reforms as well.

“We are pleased that the governor and Legislature have heard our appeals to identify and address inefficiencies in the system,” said PIANY President David Dickson. “Achieving reform is absolutely crucial to restoring integrity to New York’s workers’ compensation system.”

Gov. Eliot Spitzer’s Office
American Insurance Association
Independent Insurance Agents & Brokers of New York, Inc.
Professional Insurance Agents of New York State Inc.

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