Workers' Comp Reform a Key to Prosperity

Saturday, March 24, 2007 | 0

By Michael Campbell

South Carolina's workers' compensation system has been deteriorating for years and is now broken. Just 10 years ago, South Carolina boasted some of the lowest premiums in the nation. Unfortunately, fraud, excessive bureaucracy and judicial activism have taken their toll on the system. Premiums have perpetually increased, while litigation has clogged the system so much that even plaintiffs' attorneys are clamoring for reform.

The combination of high premiums and excessive litigation dampen prosperity and discourage new industry from South Carolina. Companies prefer not to move to a state where the cost of doing business is inflated by arbitrary costs. This has cost the state more than 12,800 jobs and has adversely affected economic development.

Between 2001 and 2005, employer premiums increased by more than $275 million -- a 70% increase in only four years. Costs are skyrocketing because the system, which mandates all employers with four or more employees must carry workers' compensation insurance, lacks competition among insurance providers. Why? Despite recent premium increases, insurers are still losing an average of about 25 cents on every premium dollar, giving them a rational incentive to leave South Carolina.

On Dec. 1, rates increased another 18.4%. Sadly, that increase was a minimal victory for S.C. businesses. Initially, a 32.9 percent increase was proposed. These increases stem from greater attorney involvement, which causes claims to take longer to be settled, and medical payments that are growing faster than the national average.

Future increases can be avoided by eliminating the need for attorney involvement in the system and adapting a no-fault system where awards are based on pre-determined uniform standards.

In addition, the Second Injury Fund should be dissolved. More than 98,000 S.C. businesses are forced to contribute to the fund, which is intended to reimburse insurers and self-insured employers for claims paid to workers with injuries that may or may not have been caused by a pre-existing injury. But only a sparse few benefit. The fund stifles competition and prompts higher premiums. Furthermore, it forces insurers into two categories: those who are unwilling to write policies because of high cost assessments and those who are undeterred because they simply pass along the costs to businesses in the form of higher premiums. The Second Injury Fund is not really a fund, but an invisible tax on employees, employers and customers.

Businesses wish to compete in an open marketplace guided by free-market principles and not burdened by unfair, arbitrary regulation and regressive fees. So why has the General Assembly been slow to act? With some legislators, it has simply been a matter of this not being a top priority. Others have tried to act to no avail. However, with certain elected officials, it is a case of not wanting to cut off the hand that feeds them. These lawyer-legislators profit from the current system to the tune of millions of dollars a year. This is wrong!

The status quo consists of frivolous bureaucracy, excessive litigation and inefficiency in the workers' compensation process. It has led to insurance costs that are now the second-highest expenditure, after wages, for small and medium-sized businesses. Those costs are borne by workers through lower wages and by consumers through higher prices. Thus, reforming the system will benefit all South Carolinians and will create a climate favorable for businesses and our citizens.

South Carolina must heed the call of prosperity and do everything possible to ensure our state has open doors to opportunity. South Carolinians who want to bring economic growth and development to the state should urge their legislators to support these much-needed reforms to our workers' compensation system.

Michael Campbell is the S.C. chairman and director for Americans for Prosperity and a member of the S.C. Chamber of Commerce's small business committee. This column first appeared March 9 in The State newspaper. Its Web site is http://www.thestate.com.

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