WORKERS’ COMP COSTS – NYS 27% ABOVE U.S. AVERAGE INTERVIEW WITH PETER F. ROUSMANIERE, OCTOBER 2006
An association of businesses, the Business Council of New York State, has undertaken reform of Workers' Compensation laws, with a program called Comp Watch. New York State’s cost per Workers' Comp case is 72 percent above the national average. In September 2006 Attorney General Eliot Spitzer endorsed the idea of reforming Workers' Comp in New York State. Crain's Magazine on October 23, 2006 (p. 10) editorialized that such reform would be a step in the direction of removing "one of the most significant drags on the New York economy."
To get some perspective on this issue, CityEconomistinterviewed Peter Rousmaniere, a columnist for a leading insurance magazine, Risk & Insurance. Peter talks with many people throughout the country on Workers' Comp and consults within the field, where he worked for 20 years. He has an MBA from Harvard.
Do you think Workers' Comp should – and can – be reformed in New York State? PFR: Yes and yes. The Workers' Comp system everywhere in the United States needs a comprehensive assessment. This could well start in a major state like New York. After all, the whole Workers' Comp system was in part the result of increased interest in labor conditions after the famous, tragic Triangle Shirtwaist Factory fire in 1911, one block from Washington Square. New York State’s first Labor Commissioner was Frances Perkins, who cut her teeth on the Triangle Fire. As you know, she went on to become the first Secretary of FDR’s newly created Labor Department, and the first woman to be a member of the Cabinet. What do you think is the biggest issue with Workers' Comp? Crain’s picks out the issue of permanent partial disability. PFR: This is one of a number of symptoms of a basic problem, which is that Workers' Comp has hardly changed since the days of Frances Perkins. It is failing badly in cases of industrial diseases. A case in point is the way that illnesses from the WTC cleanup were mishandled from the perspective both of prevention and compensation. People outside the field don’t realize that many WTC cleanup workers felt they had to misrepresent their conditions to get through the workers comp maze. The next few occupational disasters will not be traditional ones like the Triangle fire but will be in some cases very frightening diseases, as in the WTC cleanup.
Are Workers' Comp costs too high? PFR: The best answer to this often-posed question is that the system is obsolete, which has made it unresponsive, with far too much overhead costs, and universally disliked. The design of the system today is extremely close to where it was in its birth, 1910-1925. Work has changed, exposure to injury and illness has changed. The science of detecting occupational risks has moved ahead greatly. Injured worker options have changed – career-change options are far greater than in the 1920s. Medicine has changed. The whole disability system, enormous compared to 1920, is cumbersome, overused, and an invitation to moral-hazard problems.
Will the Federal Government come in to make needed changes? PFR: It is clear to people in the field that creeping federalization will occur, with Washington paying for an increasing amount of work-injury costs. But no one really knows how much and who should be accountable to manage this shift – or indeed whether such a shift is good for workers and employers. The Federal oversight body for Wall Street, the SEC, fell down on the job while your Attorney General picked up the slack. Federal doesn’t mean better.
What is the solution, then, do you think? PFR: The main solution is that the WC system needs to be better integrated into health plans and into other disability programs. This is not going to be an easy task. We saw what happened when the Clinton Administration tried to reform health care. But it is arguably easier for a governor to take on a task like this than a President. At least the Federal-State issues are not as thorny. A group of governors might also undertake reforms. It might start with an in-depth assessment. The last time such an investigation happened was in the 1970s. This study spurred states to make much-delayed reforms, generally favoring workers who had been under-protected.
Thank you. This was an exploratory interview. Can we get back to you if we have more questions? PFR: Absolutely. New York State seems to be on the verge of a lot of good reforms. I would be glad to help any way I can.