Workers' Comp: Headed over the 'Fiscal Cliff?'

Friday, August 10, 2012 | 0

With Washington seemingly frozen in place, unable to agree on anything except it's the other side's fault, the awful specter of the Fiscal Cliff looks more and more possible. But unlike any other fall from a great height, we're already getting hurt.

The "Fiscal Cliff" is shorthand for the automatic government spending cuts and tax increases that will go into effect Jan. 1 less than five months from today if Congress fails to reach agreement on a plan to reduce the deficit. The Congressional Budget Office projects the cuts and tax increases will reduce the deficit by over a half-trillion dollars, but they will also cut four points from gross domestic product (GDP) and trigger another recession.

The CBO also projected that a failure to reach agreement early in 2012 would negatively affect the economy, leading households and businesses to cut spending and thereby reducing 2012 GDP by a half-point.

That projection appears to be prescient.

Manufacturers are already cutting back on orders. Some companies are holding off on hiring new workers. The hospitality industry is watching occupancy rates decline. Failure to address the Cliff will mean infrastructure construction and maintenance projects are in jeopardy.

All this at a time when workers' comp insurers are finally seeing some consistent premium rate increases, increases desperately needed to build up deficient reserves and cover rising medical expenses.

Employment drives workers comp, and employment in manufacturing and construction has a disproportionate effect. Although forecasts are still positive for hiring (particularly in non-residential construction), the closer we get to 12/31/12 the more dicey things will get.

What does this mean for you?

Watch what happens in DC; A resolution to the deficit crisis bodes well for work comp; no resolution would be bad news indeed.

<i>Joe Paduda is owner of Health Strategy Associates, a Connecticut employer consulting firm, and co-owner of CompPharma, a consortium of pharmacy benefit managers. This column was reprinted with his permission from his Managed Care Matters blog.</i>