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California leads U.S. states in workers compensation costs

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A biennial ranking showing that workers compensation rates have risen more in California, New York and New Jersey than other states could help drive workers comp reforms nationwide.

California had the highest workers comp rates of any state as of January, according to the 2014 Oregon Workers' Compensation Premium Rate Ranking Summary. The influential report, published earlier this month by the Oregon Department of Consumer and Business Services, shows California's workers comp premiums averaged $3.48 per $100 of payroll.

Connecticut came in No. 2 with a premium rate of $2.87 per $100 of payroll, while New Jersey was No. 3 with a rate of $2.82, according to the Oregon study.

Mike Manley, research coordinator at the Oregon agency, said the national median rate of $1.85 per $100 of payroll remains relatively flat compared with the department's 2012 study, which showed a median rate of $1.88. He said 21 states have rates within 10% of the 2014 median, making them relatively on par with national premium rates.

Mr. Manley said the study put Oregon at No. 43 on this year's list, with a premium rate of $1.37 per $100 of payroll.

Christine Baker, director of the California Department of Industrial Relations, said Oregon's study doesn't address California workers comp reforms passed in 2012 that are still being implemented and “need time to work.” She also said Oregon's ranking doesn't accurately portray the amount of benefits paid to injured workers, which can affect premiums.

The study, initially established in the 1980s to measure the competitiveness of Oregon's workers comp system with neighboring states, has since become a premium measuring stick for states around the country, Mr. Manley said.

It does not, however, measure states' workers comp costs, such as benefits paid to injured workers or return-to-work rates.

“This doesn't express the cost-effectiveness of your system,” Mr. Manley said. “You have to be determining whether your system is meeting other goals, like getting people effective medical treatment, getting people back to work ... minimizing injuries and resolving disputes.”

Paul Braun, managing director of casualty claims at Aon Global Risk Consulting in Los Angeles, said the Oregon study's rankings fall in line with factors that are driving up workers comp costs in various states. The factors include increasing workers comp medical costs and higher unemployment rates in some states, which usually are linked to an uptick in claim frequency.

“The workers comp system is a challenge, which then gets right back to premiums,” Mr. Braun said of states such as California, New York and New Jersey.

States that ranked highly on Oregon's premium study could see a push for reforms to make them more attractive to businesses, Mr. Braun said.

“One of the challenges in states that have a lot of complicated work comp laws is it tends to push the employers to other states,” said Mr. Braun, who doubted any reform efforts would begin until after the midterm elections.

States such as Illinois, Oklahoma and Tennessee have cited the Oregon study as they sought workers comp reforms in previous years, said Peter Burton, Wayne, Pennsylvania-based senior division executive for state relations at the National Council on Compensation Insurance Inc.

“They've used it as one more example of the economy not working well in a given state, and they've used it to push reform efforts,” Mr. Burton said.

For instance, Illinois, which was ranked the No. 3 costliest workers comp state in 2010, passed a series of workers comp reforms in 2011, including a 30% reduction in the state's workers comp medical fee schedule, establishing workers comp-specific medical provider networks and requiring medical utilization reviews.

Michael Latz, chairman of the Chicago-based Illinois Workers' Compensation Commission, said the Oregon study “demonstrates that Illinois workers compensation costs have decreased since 2011.”

“The Oregon study compares insurance premium across states; insurance premium does not necessarily reflect workers compensation cost savings,” Mr. Latz said in a statement to Business Insurance. “Illinois is reducing workers compensation costs. The fact is that workers compensation costs are falling faster than insurance premiums.”

Not all states see the Oregon rankings as a barometer of how their workers comp systems are performing.

States such as California, New York and Connecticut have said “(Oregon's) methodologies are askew, and they're not accurate,” said NCCI's Mr. Burton, who said NCCI does not have an opinion on Oregon's workers comp study.

“There is nothing in the Oregon study to compare the differential coverage and benefits and medical-legal appeals system that each state offers,” Christine Baker, director of the California Department of Industrial Relations said in a statement to Business Insurance. “At the extreme, a state could drastically reduce its scope and level of benefits in order to reduce costs and do "better' in the Oregon comparison.”

Oregon's Mr. Manley said payroll distribution comparisons made in the state's study are similar to payroll comparisons made by NCCI when the ratemaking agency files for workers comp advisory rate changes in dozens of states each year.

“It is different state to state, (but) it's not substantially different,” Mr. Manley said. “So I think we can make that distinction with a fair amount of confidence.”

While Mr. Manley said he believes the Oregon workers comp study is fair to other states and knows it is used in political discussions, he said the ranking provides just one snapshot of the national workers comp landscape.

“We're always trying to tell other states ... that we're describing you, we're not evaluating you,” Mr. Manley said. “We're not saying you're doing well (or) you're doing poorly. It's a description of one aspect of your system.”