More Truth About Workers Comp

Linked here is an unpublished letter to the NY Times by Ed Welch, Director of the Workers' Compensation Center at Michigan State University, regarding the workers comp article that I have written about here and here and here.

He makes some very good points:

The rise in workers comp costs averaged over the past ten years is actually not that bad. It looks bad because it was sudden. The WC insurance companies set their rates below cost while making money in the stock market and now they're in trouble, trying to make up for lost earnings. In addition, adds Welch, some of the current cost increase is a result of insurance companies spreading the cost of 9/11 over all carriers. Between these factors and rising health care costs, little of the rate increase actually goes into workers' benefits.

Welch also takes issue with the Chamber of Commerce statement quoted in the NYT article that “The only way to reduce your cost is to reduce your payroll.” And cites research showing that “employers can control their costs through safety. Many employers have dramatically reduced their costs in the last ten years by serious efforts to prevent injuries” as well as return to work programs."

In fact nearly all workers' compensation insurance rates are “experience rated.” That means that an employer’s premiums are based on its own experience. Employers that control losses through safety and return to work programs pay less. Employers that injure more workers and refuse to take them back to work pay more.

Welch concludes by warning that

Sometimes insurance commissioners and chambers of commerce are tempted to tell employers that the only way to deal with high workers' compensation costs is to support politicians and trade associations who will change the law and take benefits away from workers. In fact those employers who are willing to take responsibility for their own experience can control costs themselves.

Politicians should resist the temptation to “lead another bandwagon to reduce benefits further.”

There is a much better solution. If employers will prevent injuries, provide good health care when they do occur and help injured workers back to reasonable productive jobs as soon as possible, they will reduce their own costs and help their employees at the same time.