Governor Adding Insult to Injury?

Tuesday, April 30, 2013 | 0

We have long touted Massachusetts as the gold standard for workers' compensation reform. In 1990, the state operated the second or third highest cost comp system in the nation; today Massachusetts is ranked 44th, with rates less than half of those in the other New England states. At the same time, the benefit structure is relatively generous, with a maximum indemnity wage of $1,150. The "taxachusetts" label applies to many aspects of living in the Bay State, but the cost of workers' comp insurance is certainly not one of them.

But as is so often the case, failure lurks at the edge of success. The Insider has written extensively about the rate suppression that is opening like a sinkhole below the market. The comp rates are so low, even good risks become questionable, simply due to the law of averages. Any company in Massachusetts with a .80 mod is by definition a marginal risk, because there is not enough premium to cover the exposure.

Generous to a Point

While benefits for injured workers are for the most part generous, there is one aspect of comp where state benefits fall short of what is needed and what is available in most states: injured workers only receive 60% of their average weekly wage, compared to the 66 2/3% or higher offered in other states. The 60% figure emerged in negotiations during the monumental reforms of 1990; even then it seemed harsh to extract savings from the pockets of those least able to afford it.

Now, in a desperate effort to increase revenues, Governor Deval Patrick is proposing that workers' comp indemnity benefits be taxed. As a result, the already reduced 60% would be reduced another 4-6%, depending upon the final income tax rate in the new budget. Such taxation would violate the spirit of workers' comp and exacerbate the stress of being injured and out of work. One of the unintended consequences of such a tax would be to push injured workers into the hands of attorneys, who thrive on friction and live off the most inefficient and expensive part of comp, cash settlements.

A Matter of Fairness

There are many factors contributing to the Massachusetts success story: a stingy fee schedule that doctors abhor, reduced reliance on settlements, which antagonizes claimant attorneys, a speedier dispute resolution process and a reduction in indemnity benefits for workers.

In the Bay State, injured workers have already paid a price for the lower costs of workers' comp. It would be unfair to ask these workers to make even greater sacrifices, when workers in other states receive higher benefits with no taxation. No matter what the rationale for taxing indemnity benefits may be Normal 0 MicrosoftInternetExplorer4 − supporting education, fixing infrastructure Normal 0 MicrosoftInternetExplorer4 − the measly $8 million raised by such a tax would be insignificant when compared to the cost to those least able to absorb it. It's hard enough suffering through the pain of injury and recovery without adding insult to injury by further reducing already reduced income. This is a very bad idea and it should be tossed from the budget immediately.

Jon Coppelman is a principal with Lynch Ryan and Associates, a Massachusetts-based employer consulting firm. This column was reprinted with his permission from the firm's Workers' Comp Insider blog.