Geaney: Workers' Compensation Benefit Rates Are Skyrocketing

Tuesday, December 28, 2021 | 0

It is not widely known, but the new 2022 workers’ compensation benefit rates in New Jersey are 10% higher than those in 2021!

John H. Geaney

Yes, you read that correctly — 10% higher than in 2021. That is the highest jump in benefit rates since the early 1980s.

The annual percentage increase in maximum and minimum benefits from 1990 to 2021 was rather modest. In the last 32 years, the highest benefit rate increase was 5%. Most were 2% to 3% a year, and in 2011 the maximum rate actually dropped slightly.

Consider this: The minimum rate for temporary disability benefits in 2021 was $258; the minimum rate in 2022 will be $284 (10% higher). The maximum rate for temporary disability and permanency benefits in 2021 was $969; the maximum rate in 2022 will be $1,065 (10% higher). 

What does this mean? First, it means that a high-wage earner will be compensated for lost time at $1,065 for each week of lost wages before reaching maximum medical improvement, not $969 as in 2021. It also means that payouts for permanency awards will be dramatically higher, requiring employers and carriers to raise reserves sharply. 

The first 90 weeks will be rated at $284, or 10% more than current 2021 rates. An award of 15% currently amounts to $23,220. That is because 90 weeks multiplied by $258 equals $23,200. An award of 15% at 2022 rates will be $25,560, a 10% increase. Those are the lower awards, but when you get to high percentage awards, the dollars will be much more impactful on employers and carriers. An award of 50% will cost almost $20,000 more than in 2021. In 2021, that award would be $193,800. Add 10% more for the same disability award in 2022.

That’s not all. This hike in benefit rates also raises counsel fees rather sharply. That is another cost that employers and carriers will bear. On a percentage award, like 30% permanent partial disability, counsel for petitioner generally gets a 20% fee. For example, a 30% award in 2021 amounts to $56,934 for a fairly high-wage earner. The counsel fee would be 20% of that award, or $11,386.

Now that fee will rise by 10%. Since respondent pays 60% of the petitioner’s counsel fee on an order approving settlement, the rate hike means employers are going to pay quite a bit more money in counsel fees for petitioners’ attorneys. It is also worth noting that this means injured workers will have to pay more in dollars to their attorneys.

Why the massive rate hike in workers’ compensation benefits? Rates in New Jersey are tied to the increase in the statewide average weekly wage. The Department of Labor must have calculated that the statewide average weekly wage is up 10%. Inflation has been jumping in many sectors of the economy, and that fact is driving wages higher. 

There is a big shortage of workers in New Jersey and most states. This, in turn, fuels wage inflation, and higher wages translate to higher awards.

There is a built-in flaw in the New Jersey Act. Remember that annual rates are adjusted according to the increase or decrease in the statewide average weekly wage. The focus is on wages. Yet many injured workers get back to work after an injury and do the same job with no impact at all on working ability or wages. They can get an award by proving a material impact on non-work activities. So if an injured worker testifies at settlement that there is no impact on earnings or working ability (only an impact on activities of daily living), why should employers be paying 10% more in 2022 than 2021 for the same injury? That award appears to be for functional loss only. It does not make sense for a worker to get an award of $44,154 (25% of partial total) for an operated rotator cuff injury in 2021 with no impact on wages, but get an extra $4,400 for the same rotator cuff injury occurring in 2022.  

Next, consider the injured worker who has a very physical job and can no longer do that job due to the work-related rotator cuff tear. Suppose that worker has to take a lower-paying job. If so, wages will be impacted for many years, perhaps for the rest of the working life. The worker’s family will be directly affected. That’s the person for whom the weekly rate hike was intended. In addition, every judge of compensation will likely award a higher percentage of disability in that scenario. Those are the two ways to put more money into the pocket of a worker whose wages are truly impacted by an injury.

While hikes in weekly benefits are good news for injured workers, what about the impact on employers and carriers? This year’s 10% benefit rate hike is very bad news for employers that have not been able to raise prices during the pandemic. Their revenues are declining or static while the cost of business is rising sharply, and the cost of workers’ compensation is a big part of that increase. 

Some employers have had to close down, or they have seen their revenues plummet due to the impact of the coronavirus. The timing could not be worse for them. 

The public sector will also be affected by this large percentage hike in weekly benefit rates. When public employers pay more in workers’ compensation benefits, taxpayers are actually footing the bill through higher property taxes in a state with enormously high property taxes to begin with.

John H. Geaney is an attorney, executive committee member and shareholder with Capehart Scatchard, a defense law firm in New Jersey. This post appears with permission from Geaney's New Jersey Workers' Comp Blog.