Employers, legislators, unions at odds over how much is too much


August 12, 1991|By Tawn Nhan | Tawn Nhan,Knight-Ridder News Service

After 16 years of building television and radio towers in Cambridge, Minn., Tower Systems Inc. is moving to Watertown, S.D.

The move wasn't driven by a lack of business or an overabundance of competitors.

It was prompted by workers' compensation costs in Minnesota that were nearly four times as much as in neighboring South Dakota.

"It's a matter of survival," said Charles Johnson, the company's vice president. "It's not a matter of profitability anymore."

A similar concern led Delaware River Stevedores, overwhelmed by what one manager called a "well-intentioned system run amok," into federal bankruptcy court in Philadelphia last month.

DRS spent $2 million of its $25 million in revenue on workers' compensation last year.

DRS and Tower Systems have joined a growing number of companies across the nation that are taking similar drastic steps to confront rising workers' compensation costs. Those costs are swelled by laws that the companies say are highly susceptible to abuse and fraud.

Nationwide, workers' comp costs shot up an average of 10 percent annually over the last decade. The average claim jumped 98.4 percent from $1,724 in 1980 to $3,420 in 1989, according to the National Council of Compensation Insurance.

Now, the business community is fighting back. And policy-makers and unions are taking notice.

In May, Minnesota passed a bill that would reduce workers' compensation premiums by 12 percent. Pressured by employers, Gov. Arne Carlson vetoed the bill because it did not go far enough. The governor and state's employers are pushing for a 17 percent reduction plus stricter laws to prevent abuses.

In Texas this spring, several insurers cut back on issuing of workers' comp policies. In May, the Hartford Insurance Group said it would renew only policies for coverage of at least $350,000 because escalating claims had made the insurance unprofitable. At least three other insurers took similar actions. Triggering these cuts: Insurers in the state paid out $3.5 million in claims in 1989 on only $3.36 million in premiums.

In July, passage of California's budget was stalled by disagreements over workers' comp reforms. Gov. Pete Wilson signed a $55 billion budget only after the Legislature agreed to restrict stress-related claims in the first six months of employment.

Maryland's legislature rejected several efforts by business groups to limit workers' comp payments this year. One bill would have barred payments if an injury was caused as part of a "non-employment relationship." Another would have limited payments if an injured person had traces of drugs in his bloodstream.

Also last month, Maine's budget was hung up over a demand for workers' comp reforms. Gov. John R. McKernan approved a budget on one condition: that the legislature return for a special session this month to draft a workers' compensation reform bill.

Maine has some of the costliest workers' comp insurance in the nation. In 1989, insurers collected $284 million in premiums but lost $439 million in claims, according to the National Council on Compensation Insurance. By comparison, workers' compensation insurers nationwide usually receive 19 percent more in premiums than they pay out in claims.

"We've got runaway costs," said Stephen Smithwick, an insurance broker and owner of Smithwick & Clarke Insurance in Portland, Maine. "How can a state like Maine, with the second-lowest income, hand out the second-most benefits?"

Feeling the brunt of such costs is the Maine Mariners hockey team, which is poised to leave the state if workers' comp reforms are not made. The Mariners, a minor-league affiliate of the National Hockey League's Boston Bruins, pay twice as much as the major-league team does for workers' compensation insurance, said Mr. Smithwick, whose firm has covered the team for 33 years.

But because the team is in Maine, the Zurich Insurance Group, which insures all other NHL and NHL-affiliated teams, refuses to insure members, he says.

"We've got to say, 'Hey, this has got to stop,' " said Mr. Smithwick.

More employers, citing rampant abuse, outright fraud and intolerable premium increases, are lobbying their state governments for reforms or relocating to states where the costs are cheaper.

"It appears to be a trend," said Jim Ellenberger, a national spokesman for the AFL-CIO, which represents more than 14 million U.S. industrial workers. "But if people are really interested in reforming workers' compensation, it requires an effort by all parties."

Because the states, rather than the federal government, set eligibility and benefit standards, the amount of compensation and the types of injuries that qualify can differ radically from state to state. Iowa, which has one of the most generous systems, allows a seriously injured employee to collect up to 80 percent of his or her weekly wages.

At issue to employers is how easy it is to collect workers' compensation.

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