The Tennessee General Assembly on Thursday gave final approval to workers’ compensation legislation that seeks to address rising costs in the state’s workers’ comp system.
SB 3424, introduced at the request of Gov. Phil Bredesen (D), represents long-needed reform, according to the American Insurance Association (AIA). Proper implementation of the new law will reportedly be required in order for the predicted savings to become reality and return stability and predictability to the workers’ comp system.
“In recent years the Tennessee workers’ compensation system has become one of the most costly in the country,” said AIA’s Cecil Pearce, “with total claim costs that are the second highest among 12 states in a recent Workers’ Compensation Research Institute (WCRI) study. This legislation takes some modest steps to getting several of the biggest cost drivers under control.”
• One of the major cost drivers is the high frequency and cost of permanent partial disability (PPD) claims, caused by Tennessee’s use of “multipliers,” which can increase the base benefit by as much as 2.5 times based on an employee’s age, education, and other factors for those who return to work at full wages. SB 3424 reduces that multiplier to 1.5, but does not address the current 6.0 multiplier for those who do not return to work with the same employer.
• Also, Tennessee is second only to Texas in medical costs according to WCRI; many states with high cost reputations, including California, Connecticut, and Massachusetts, have significantly lower costs. The reason: high prices paid for individual medical services. Tennessee had been one of the few (8) remaining states without a medical fee schedule for workers’ comp. SB 3424 requires the state to develop a medical fee schedule for all medical services, although it leaves all issues regarding design to the regulatory process. AIA believes reimbursement for medical services should not exceed 110% of the allowable reimbursement under the federal Medicare program, which is based on extensive research on the actual costs of providing medical services.
• Tennessee is one of the few remaining states in the U.S. to rely first and foremost on its courts to resolve disputes in the system, which reportedly translates to higher costs due to more lump-sum payments and a greater percentage of claims involving defense attorneys. SB 3424 takes a first step toward eventual elimination of the court-based system by requiring that all parties participate in a benefit-review conference before filing claims in court. However, it remains to be seen whether this incremental step will decrease or increase system costs. Training for judges will also be required in an attempt to reduce the inconsistent application of the law – resulting in wildly differing benefit awards – throughout the state.
SB 3424 requires that carriers reflect actual cost savings resulting from the legislation in their premiums within 15 months of the bill’s effective date, July 1, 2004. The National Council on Compensation Insurance has estimated the bill will reduce costs between 3-8%, most of it from the reduction in the PPD multiplier. However, this does not take into account cost increases likely to result without proper implementation of the medical fee schedules.
“SB 3424 offers the hope of cost savings,” said Pearce, “and we applaud Gov. Bredesen for recognizing the need to improve the system. Hopefully, the cost-saving expectations of SB 3424 will be achieved as we move from enactment to implementation of the new law.”
Was this article valuable?
Here are more articles you may enjoy.