New York has had one of the worst workers' compensation systems in the country. For the past 15 years, New York’s maximum weekly benefit stood at $400—lower than every state except Mississippi and Arizona, not to mention the minimum benefit: $40 a week. Regionally, New York ranks last among nine states (from a high of $1,124 in New Hampshire down to New Jersey’s benefit of $691). The value of that $400 benefit is less than $288 in 1992 dollars. Most of New York’s injured workers receive a benefit that puts them below the federal poverty line for a family of four.
And most businesses take a powder when it comes to paying workers' comp: Fully 20-30 percent of New York State businesses evade worker’s compensation, according to two recent comprehensive studies (one study by the Fiscal Policy Institute (FPI), which found that 20 percent of businesses evaded the system; a second study by Risk Metrics Corp. pegged the number as high as 30 percent). That adds up to a lot of dollars lost: at least $1 billion (fully 15-20 percent of the premiums that should be paid).
That's why the deal forged yesterday may change the system for the better--though there is a big "if" in all that. The deal struck between government, business and labor would raise the maximum benefit to $500 by next year, $600 in 2009 and $650 in 2010 and, then, the max would reach two-thirds of the average weekly earnings in the state and stay indexed at that level after 2012. The minimum benefit would go from $40 to $100.
One problem, I see, is that large numbers of workers in the state will never receive the maximum benefit because they simply don't earn enough money.
The biggest issue is that the deal also caps the number of weeks that a worker, who is partially or permanently disabled, can receive workers' comp. Here's how it was explained in today's story in The New York Times:
In recent years, business groups have pressed to revamp one provision in particular, which allows some workers with partial disabilities, like a back injury, to receive weekly benefits until retirement age. Insisting that these “permanent” benefits inflate costs and insurance premiums, the groups urged Mr. Pataki and then Mr. Spitzer to copy other states that have capped the number of years that workers can receive such benefits.
In yesterday’s proposed overhaul, such caps would be installed. Workers classified as permanent partially disabled would be limited to 225 weeks to 525 weeks of weekly benefits depending on the severity of their injuries. The Business Council estimated that the average permanent, partial claimant would receive 344 weeks of benefits. They would continue to receive lifelong medical benefits, however.
Business lobbyists say capping the duration of benefits will give injured workers greater incentive to pursue rehabilitation and retraining and to return to work. But some experts on workers’ compensation fear that many badly injured workers would not be able to find a job once their benefits end, and would grow desperate, perhaps turning to welfare.
“The part that concerns me is that the people who have very long duration disabilities are the ones who really need workers’ compensation the most,” said Les Boden, an economist at Boston University School of Public Health who has studied workers’ compensation benefits.
A part of the deal seems to soften that threat:
At the behest of the A.F.L.-C.I.O, the deal aims to protect permanent, partial claimants through several measures. These claimants, for example, would be allowed to apply for extra weeks of benefits if they could not find a job and faced economic distress. Furthermore, the deal proposes to make it easier for permanent, partially disabled workers to be classified as totally disabled.
Kudos to Denis Hughes, the state federation president, for making sure that that is part of the deal. But, I think we should be uneasy about giving into the idea that injured workers should be penalized for the sake of the old mantra that it's the only way to make business more "competitive." The fact is that it’s the fraud and profiteering in the insurance industry that adds unnecessary costs to the cost of fair benefits for injured workers. In the past decade, the insurance industry has averaged profits of 9 percent per year (excluding 2001)—while premiums have declined at a rate of 3 percent per year.
A quick look inside the executive suites of three of the largest players in the insurance industry in New York paints a stunning picture.
• AFLAC CEO Daniel Amos took home $12.8 million in pay and other compensation in 2005. It would take a worker being paid the maximum benefit of workers’ compensation 666 years to equal that amount.
• CEO Martin Sullivan of AIG raked in $13.7 million in pay and other compensation in 2005. If a worker received the full workers’ comp benefit, she or he would have to live a robust 718 years to equal Sullivan’s 2005 check.
• And the pauper of the group, Chubb CEO John D. Finnegan earned a paltry $6 million—giving any regular worker living on workers’ comp a huge break: she or he would only have to work 316 years to match Finnegan’s take-home pay.
Why should a deal be made to take away money that is pennies compared to the vast riches being showered on the very executives who are creating much of the problem?