Thomas
Lynch Issues Opinion on Proposed Massachusetts Rate Increases
Down
The Rabbit Hole - Thomas Lynch
June 10, 2003
Attorney
General Tom Reilly has parachuted himself and his office smack-dab
into the middle of the Massachusetts workers' compensation rate
filing debate. In doing so, he threatens to pull the entire system
headfirst down the rabbit hole, right behind Alice and the March
Hare.
Every
two years, the insurance industry, represented by the Workers' Compensation
Rating and Inspection Bureau, is required to submit a rate filing
to the Commissioner of Insurance. The State Rating Bureau, a unit
within the Division of Insurance, then offers its own filing, usually
a dissenting view, about where rates ought to go. After hearings,
the Commissioner of Insurance issues a ruling. It's usually a simple
game of insider baseball.
But
this year, things are different. Whereas the industry filed for
a rate increase of 8.6 percent and the State Rating Bureau asked
for a decrease of nearly 10 percent, the AG says they're both wrong.
Very wrong. His office jumped into the fray for the first time in
20 years and filed for a decrease of 21.4 percent. If he prevails,
the Commonwealth's employers would see premiums decline by nearly
200 million dollars next year. This means that the State Rating
Bureau, representing consumers, is almost 100 million dollars wrong,
while the bean counters in the insurance industry are off by a whopping
$270 million. Wow! If only he were right.
We
should step back and check the history.
Massachusetts
employers have seen seven consecutive years of massive premium reductions
totaling 63 percent. Fierce insurer competition routinely added
double-digit discounts as well. Employers get another break in the
way the state handles medical costs for worker injuries. In Massachusetts'
workers' compensation, medical providers are reimbursed within a
fee schedule that is 20 percent less than the existing Medicaid
rate. In contrast, employers in neighboring Connecticut pay medical
costs that are 80 percent above the Medicaid rate.
All
of this makes Massachusetts one of the best states in the nation
in which to buy workers' compensation. Studies show that the per-employee
cost of workers' compensation in Massachusetts is at least 48 percent
less than the national average.
So,
why does the AG think rates should decrease another 21.4 percent?
The
AG accurately points out that accident frequency, the number of
reported injuries has declined steadily over the last decade. However,
rates are determined by examining the costs associated with those
accidents, not the number of times they occur. And the cost of injuries
has risen steadily over the same period. Even with our steeply discounted
medical payment schedule, medical costs are snowballing and are
the biggest driver in the insurers' filing. Along with the bump
in medical costs, injured employees are staying out of work longer.
In other words, we are winning the safety battle with fewer accidents,
but we are losing the economic war because injuries that do happen
are costing significantly more.
The
AG also claims that to make employers pay more for workers' compensation
adds another leaden log onto the stack of economic burdens they
must carry on their already weakened backs. Well, if employers have
weakened backs, workers' compensation isn’t the culprit. Today's
premiums are precisely where they were 20 years ago, in 1983. Were
the AG's filing approved, rates would flash back to where they were
in the days of "Ozzie and Harriet." With rates that low,
carriers will flee the Commonwealth, catapulting our workers' compensation
system into a death spiral.
In
an ideal, rational world, insurers would receive a modest increase
in rates, at least. Even employers agree, because the Commonwealth's
largest employer group, the Associated Industries of Massachusetts,
called the insurers filing "reasonable." But this is not
an ideal, rational world; it is a political one. If the insurance
industry didn't have to make a filing this year, it probably wouldn't
have, given the economic climate
So,
maybe the best thing Commissioner Julianne Bowler can do is to discard
the AG's filing, split the other two down the middle and announce
that we're staying right where we are for a while. There's a lot
to be said for stability. That way, we might all avoid a date with
the Mad Hatter.
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