Workers' Comp Reform Enhances Competition in S.C.

Saturday, July 14, 2007 | 0

By S. Hunter Howard Jr.

The business community was elated when the South Carolina Legislature passed comprehensive workers' compensation reform and Gov. Mark Sanford signed the bill into law. Surrounded by business and industry leaders from around the state, Gov. Sanford recognized that passage of the bill will help increase South Carolina's global competitiveness and improve the state's business climate.

Reforming workers' compensation is going to help move South Carolina in the right direction of growing wealth for South Carolina's 4 million citizens, in addition to better positioning our state to compete globally. The bill will save businesses more than $24 million, which now can be applied toward such goals as improving productivity, hiring more workers, or offering more comprehensive employee benefits.

In 2002, South Carolina boasted the 7th lowest workers' compensation rate in the nation. Every year since 2002, the state lost significant ground, now ranking right in the middle. Each time the state slips in this ranking, it loses valuable competitive advantage. The South Carolina Chamber, along with other groups like the South Carolina Civil Justice Coalition, has worked diligently for four years to produce a bill that protects employees without unfairly penalizing employers. The business community's calls, visits and e-mails to legislators ensured the legislation's passage this session.

While many bill provisions will benefit all businesses in South Carolina, they especially will aid smaller businesses strapped with added costs each year and limited resources to navigate the complex system.

The first thing the reform bill does is eliminate the Second Injury Fund, a pool of money designed to protect veterans of World War II and not needed since the enactment of the Americans with Disabilities Act. Approximately 98,000 businesses in the state contribute to the Second Injury Fund, yet only a handful of them actually benefit from it or even have the specialized staff needed to legally negotiate through its complexities. The 2007-passed legislation dissolves the Second Injury Fund.

The legislation also addresses an issue known as repetitive trauma. Repetitive trauma describes an injury that occurs gradually and is caused by the cumulative effects of events that happen over time by doing something that strains your body again and again. The legislation requires that awards be based on a specific finding of fact that an employee's repetitive, regular job activities caused the injury. In addition, the employee must present medical evidence to show the employment conditions caused the injury. This encourages fair awards for employees whose injuries are caused by job-related activities and not through the normal aging process.

In cases involving stress, mental injuries or mental illnesses that arise out of employment, the employee now needs to prove that employment conditions were extraordinary and unusual as compared to the normal conditions of that type of work. The new language also requires that employees present medical evidence, defined as expert testimony, documents or other material. This provision is designed to keep fraud out of the system. If some employees are committing fraud, other employees lose in the end. Amazingly, sound medical evidence has not been required in the past and anyone could claim a frivolous injury for personal gain, resulting in mounting costs to the system as a result of such abuse.

Many employers and legislators were extremely concerned about adequately addressing the lost-cost modifier, a calculation representing an insurance company's administrative costs. In the past, an insurance company's lost-cost modifier was based on a free market system. The reform bill monitors the lost-cost modifier in a more accurate way and makes insurers more accountable for their costs. With the changes, insurers must file their lost-cost modifier with the state Department of Insurance for review. The reform essentially provides guidelines for what must be contained in a filing, and consumers are made better aware of costs associated with the system.

One of the more compelling problems with the current workers' compensation system was the unlimited discretion granted South Carolina Workers' Compensation Commission in awarding benefits. The legislation takes small initial steps to restructure the Commission, steps that should facilitate more consistent and fairer cases for both employees and employers.

The legislation remedies some other issues, including imposing stricter penalties for fraud committed by employers and employees. Finally, a number of Supreme Court cases that have set unfair precedents will be corrected. The legislation specifically absolves trucking companies from liabilities in accidents involving independent contractors. Therefore, a trucking company cannot be held responsible for issues involving those persons with whom they contract but don't employ.

The achievement of workers' compensation reform in 2007 has been a long road, but South Carolina businesses demanded reform and our state will become more competitive as a result.

S. Hunter Howard Jr. is president and CEO of the South Carolina Chamber of Commerce.

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