Down The Rabbit Hole
by 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.