Workers’ Comp – A case of the fox guarding the henhouse in Florida?
FAIR advocates ending monopoly
For over a hundred years, some form of “grand bargain” – in the form of workers’ compensation insurance – has been faithfully kept not only in the U.S. but also throughout the developed world. This insurance provides workers with wage replacement and medical benefits when they are injured on the job. In return for these benefits, workers waive their right to sue employers for negligence. Employers receive protection from potentially ruinous judgements.
But the “grand bargain” doesn’t work without an even playing field that allows for access to the courts and competition between workers’ compensation insurance companies. In Florida the workers’ compensation system is broken because it is a monopoly.
In other lines of insurance, individual insurance companies file their rates by the Office of Insurance Regulation (OIR) based primarily on their own loss experience. However, in workers’ compensation, only one organization is selected to capture that data and file rates on behalf of ALL companies offering workers’ compensation coverage. In Florida that organization is the National Committee on Compensation Insurance (NCCI). The Board of Directors of NCCI is made up almost entirely of insurance industry executives. In other words, the fox is guarding the hen house.
A recent Florida Supreme Court decision invalidated parts of the Florida Workers’ Comp statute as unconstitutionally blocking injured workers’ access to the courts when their claims are denied. In response, NCCI asked OIR to approve a massive 19.6% increase in workers’ comp rates, including 15% based solely on the Supreme Court decision. Most large companies would not be affected since they have their own self-funded programs. But this unjustified rate increase would slap small businesses with a huge cost burden just as they are fully recovering from the great recession. Since small businesses are the primary engine for job growth, the effect on the Florida economy and recovering real estate market could be very damaging.
Testimony at the rate hearing demonstrated that the NCCI methodology for how data is gathered and analyzed is subjective and manipulative. It was designed to show regulators only what NCCI wants them to see and to obscure information that NCCI doesn’t want them to see. The excessive rate increase filing was clearly designed to panic policy makers into overreacting and making changes to the law that are anti-injured worker.
At center stage is a familiar bogeyman—trial attorneys. In 2003, the Florida legislature limited attorneys’ fees to a percentage of the amount rewarded by the court. There was no such limit on what the insurance company could pay their attorneys (data which, not surprisingly, NCCI does not capture). Consider a dispute over $5,000 in medical expenses. Although the insurance company can spend any amount on frivolous motions, delays, discovery, etc., the most the injured workers’ attorney can be paid, after having to prove that the claim was wrongfully denied, is $1,000. In the Castellanos case which led to the Supreme Court ruling, the hourly rate for his attorney was limited to a whopping $1.53 per hour!
Work place injuries disproportionately affect lower wage, lower socio-economic workers. The fact that in 10% of current workers’ compensation cases, workers are representing themselves because they can’t find attorneys willing to work for less than minimum wage, should cause all of us shame.
FAIR (the Florida Association for Insurance Reform) proposes that the NCCI monopoly should be eliminated. The OIR should award multiple contracts to data providers and require – with specificity – what types of raw data must be captured. That data must be public, not proprietary as is NCCI’s data. Then every workers’ compensation provider can use multiple data sources to compile their own individual rate filings going forward. The best companies will save money by paying legitimate claims, not litigating them. This robust competition would also lead to better quality care results for injured workers, which is what it should be all about.
Jay Neal, JD MBA is President and CEO of FAIR, Florida Association for Insurance Reform