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ALBANY, N.Y.New York Gov. Eliot Spitzer says he would make certain that savings from the proposed workers compensation reforms he unveiled last week get passed on from insurers to employers beginning with 2008 rates.
The governor said the reforms, in a long-awaited compromise package that is expected to go to legislators this week, would reduce employer costs by 10% to 15%. That amount is expected to grow over time, the governor said without specifying an amount.
Labor groups, employers and insurance organizations praised the deal as an important improvement for both workers and employers as the plan calls for an increase in benefits and a reduction in system costs. Legislative insiders said the package could win quick passage.
But whether the reforms hammered out by legislative leaders, labor and business representatives would result in 10% to 15% cost reductions remains to be seen, said Gary Henning, assistant vp of the northwest region for the American Insurance Assn. in Albany, N.Y.
Mr. Henning said he is cautiously optimistic because the governor did not release any actuarial data to support his assertion that a 10% to 15% cost reduction would result.
"Maybe you can get to 10% or 15%, but right now the only hard, quantifiable thing we can see is the benefit increase," Mr. Henning said.
Under the proposal, an injured worker's maximum weekly benefit would increase from $400 to $500 in the first year, $550 in the second year, $600 in the third year, and would equal two-thirds of New York's average weekly wage in the fourth year.
Once the maximum benefit reaches two-thirds of the average weekly wage, it would be indexed annually, the governor said.
Cost savings worth "hundreds of millions" of dollars are expected by setting a limit on the number of years that permanent partial disability claimants can receive indemnity benefits, Gov. Spitzer said. However, their medical services would not be capped.
New York employers, especially manufacturers located upstate, have long complained that their workers comp costs are excessive, largely because the state does not limit how long claimants can collect PPD benefits.
"This is a major step forward toward reducing the cost of doing business in New York state," Kenneth Adams, president of the Business Council of New York State Inc., said of the reforms. "It's a big win for improving our economic climate, especially upstate."
The Albany-based Business Council represented employers during negotiations of the workers comp reform package.
A January report by the Business Council noted that 42 states limit the length of time that workers can collect PPD benefits.
New York employers' workers comp costs topped $5 billion in 2004, according to the Business Council. Additionally, the Business Council, citing New York Compensation Insurance Rating Board data, noted that PPD cases accounted for just 17% of claims yet represented 81% of total system costs.
The reforms are expected to reduce costs through measures such as eliminating the state's "expensive" Second Injury Fund, which is financed through assessments that insurers pass on to employers, the governor said.
"The fund was initially set up to help injured World War II veterans, but is now instead used by some insurance carriers as a costly loophole to avoid paying claims," Gov. Spitzer said in a statement.
Eliminating the Second Injury Fund should help reduce employers' costs, said Robert J. Brewer Jr., vp of First Niagara Risk Management Inc. in Buffalo, N.Y., a brokerage unit that purchases workers comp coverage for parent First Niagara Financial Group Inc. However, he added, the cap on PPD benefits is even more significant.
Unlimited PPD benefits led many insurers to stop writing guaranteed cost programs and limit offering some loss-sensitive programs, said Mr. Brewer who hopes the reforms will renew insurer interest in New York.
He agreed that it remains to be seen whether costs will decrease by as much as 15%.
The New York State AFL-CIO called the agreement "historic" and said it would provide injured workers with the first benefit increase in 15 years. The labor group said benefit increases would begin this year.
In addition to increasing the maximum injury benefit, the reform proposal would increase the minimum benefit from $40 to $100 per week, according to the AFL-CIO, which participated in the negotiations.
Insurers were not invited to the negotiation table.
Although cautiously optimistic, insurers are concerned that now that the governor has promised a 10% to 15% cost decrease for employers, political pressure will be placed on insurers to deliver even if the reforms do not reduce expenses by that amount, said the AIA's Mr. Henning.
In his announcement last week, Gov. Spitzer said he and legislators have directed New York's superintendent of insurance to make certain that the system savings "are captured in premium rate reductions, beginning in the next rate setting cycle that concludes this July."