Workers' Compensation “Reform” Gains Traction in New York

On February 27^th the Governor’s Office, the Business Council, the NYS AFL-CIO and the legislature all issued press releases hailing a “jointly agreed upon” Workers' Compensation reform proposal. Within a week the bill was written, unanimously passed in both houses, with little opportunity for additional public comment as signed into law. However, amidst all the spin, there are at least two proposals which will fundamentally change the historical bargain between workers and employers, and workers’ advocates have been critical of the legislation.

The good news, of course, is the first rate increase in 14 years – to $500 – as of July 1st,. In July 2008 the maximum rate increases to $550, in July 2009 to $600 and in July 2010 to 2/3rd of the State Average Weekly Wage (“AWW”) and thereafter indexed for inflation. (The State AWW is presently around 1041 a week, and if the state AWW standard was currently in effect, the maximum compensation rate would be around $694.00 a week). Additionally the minimum benefit was raised fro $40 to $100.

In evaluating the legislation however, all need to be aware of a virtual tidal wave of “reform” that has swept through Workers' Compensation programs in almost all the states. These reforms generally can be summarized by the phrase: “drastically cut or eliminate benefits to workers.” When compared against what has been happening in other states, New York’s reforms appear quite benign. But, as with any legislation “the devil is in the details.” Unfortunately, although one of the goals of the legislation appears to be the reduction of litigation, insurance defense attorneys are already counting their chickens, viewing the legislation as the “full employment for defense attorneys act.”

Meanwhile, workers advocates are decrying the most fundamental change in Workers' Compensation law in 90 years, and that is the ten year limit on the amount of benefits permanently disabled injured workers can receive for permanent partial disabilities. This places a time limit on the types of injuries which were traditionally viewed as progressive in nature and “non-schedulable; specifically injuries to the spine, heart, lungs, brain, visceral organs. New York has always time limited benefits to extremity injuries.

Now benefits for even the most severe partial disabilities will be capped on the following basis:

Schedule of Permanent Partial Disability Disabilities under Workers' Compensation Amendments of 2007. (effective July 1, 2007)

A second area of great concern to workers’ advocates is and the proposal within the legislation to discard the traditional NYS Workers' Compensation Board standards of assessing disability and to instead apply fact based disability determinations. The problem is that nobody really seems to yet know the meaning of the term “fact based disability determinations.” Does it refer to a medical-vocational analysis similar to that employed in Social Security Disability adjudications, or is it a euphemism for AMA Guidelines uniformly detested by workers’ advocates across the country as “stingy and unfair?”

In order to outline some of these concerns we are reproducing the Governor’s press release truncated by comments - pro and con - in red italics. However, a note of caution: many of the statutory sections still need to be fleshed out by more detailed regulations, and this is the “great unknown.” So these comments are made subject to revision. Subsequent to the initial publishing of these comments we received additional information from the AFL-CIO, indicating that there have been built in to the proposals a number of innovative safeguards for labor and business. We will address these in future articles.

Here follows the Governor’s press release, truncated by our observations.

FOR IMMEDIATE RELEASE:
February 27, 2007

LANDMARK WORKERS’ COMP ACCORD BENEFITS BUSINESS AND LABOR

Reforms Tackle Twin Problems of Low Benefits and High Premiums

Governor Eliot Spitzer, Lieutenant Governor David Paterson and legislative leaders today announced a landmark agreement to reform the state’s workers’ compensation system.

Under the agreement, benefits for injured workers will be increased for the first time in more than a decade, and employer costs, which are among the highest in the nation, will be reduced by 10 to 15 percent with savings to grow over time.

“This is a remarkable win-win situation for both workers and employers,” said Governor Spitzer. “Thanks to the cooperation of legislative leaders and staff, and with constructive input from business and labor, we’ve developed an approach that will achieve the twin goals of helping injured workers and improving the state’s competitiveness.”

“New York State's workers and employers are the backbone of our economy and our hope for a prosperous future,” said Lieutenant Governor David Paterson. “True leaders from the labor, business, and legislative sectors have found common ground despite their differences to reach this remarkable agreement.”

“Under this agreement, the weekly benefit for injured workers would be raised significantly and, for the first time in the state’s history, an on-going maximum benefit rate increase would be indexed and not ever require further action by the Legislature or Governor, a provision the Assembly has long fought for,” said Speaker Sheldon Silver. “With this plan, we strike a balance by establishing a more effective and just compensation system for injured workers while also providing insurance premium savings to employers. By protecting workers and reducing the costs to businesses, this historic agreement establishes a more effective environment for economic development and will spur job creation in the hard-pressed western New York economy and throughout New York State.”

“The agreement on workers compensation reform is a tremendous victory for workers, who will receive increased benefits, and for businesses that will see a significant reduction in premiums,” said Senate Majority Leader Joe Bruno. “Many of the reforms in this plan result from bills passed by the Senate over the past decade, as well as initiatives discussed at workers compensation roundtables held by Senator George Maziarz. I congratulate Senator Maziarz and the representatives of business and labor for working together to deliver a result that will strengthen businesses and protect employees.”

“Reform of the State's Workers' Compensation system has been one of the most contentious issues facing our State Government,” said State Senate Democratic Leader Malcolm A. Smith. “The fact that both the Business Council of New York State and the AFL-CIO are supportive of the Governor's proposal speaks volumes about the merits of the agreement. Once again message delivered, message received, action taken."

“Governor Spitzer deserves a lot of credit for bringing together disparate groups and leaders to agree on a truly significant workers’ compensation reform package,” said Assembly Republican Leader James Tedisco. “The outdated system had long been an impediment to job creation and economic growth, especially in Upstate New York. While much more remains to be done in improving the upstate economic climate, today marks a key turning point toward that goal. The oft-used cliché of ‘New York is open for business’ is appropriate here. This is an important victory.”

Key elements of the comprehensive reform package are as follows:

• The maximum weekly benefit for injured workers will be increased from $400 to $500 in the first year, $550 in the second year, $600 in the third year, and to two-thirds of the average weekly wage in New York in the fourth year. Once the maximum benefit reaches two-thirds of the average weekly wage, the maximum benefit will be indexed annually;
  
  This looks good on paper, but still is nowhere near the benefit levels in other states, where the cost of living is similar to New York’s. It is also our understanding that the benefits will ultimately be capped at 2/3 of the STATE average weekly wage, rather than the claimant’s average weekly wage. This hurts higher wage earners.
  
  In nearby states the current maximum rates of Workers' Compensation benefits are: Vermont - $887; Pennsylvania - $690; New Jersey- $650; Massachusettes - $884; Connecticut -$911; New Hampshire $1038.
  
  
• The minimum weekly benefit will be increased from $40 to $100;
  
  Good.
  
  
• Cost savings worth hundreds of millions of dollars will be achieved by setting maximum number of years that a small population of claimants can receive cash benefits. Medical services will continue, however, and a safety net will be established to help these workers return to gainful employment and to intervene in cases of extreme hardship;
  
  The cost savings envisioned will come at the expense of the most severely and permanently disabled workers. Already most types of injuries were compensated only with a set schedule of benefits. But under current law, if following an injury to your spine, heart, lungs, brain, you could never return to work at your job you would be entitled to a wage supplement of 2/3 the difference between your former wage and you current wage in a less demanding job. Now you would only get that for 10 years.
  
  For example Bob is 50 year old worker in a lumbar yard. He has a good union job paying $1200 per week, but the work is quite heavy. He suffers a spinal injury in a fall at work, and can never return to the heavy work he was doing. Instead he finds a light job which pays only $600 a week. He has a $600 weekly loss of earnings. He would, under current law, be entitled to $400 a week compensation (2/3). As he earns more the compensation would decrease. Under the new proposal, when Bob reaches age 60, his” reduced earnings benefits” will simply stop.
  
  It goes without saying that in many cases, injuries to the spine, heart, lungs, brain are progressive and worsen in time, rather than improve. Perhaps with the progression of disease Bob will have to work fewer hours. It seems rather harsh to tell Bob the money gets cut off when you hit 60, and you’re actually worse than you were 10 years ago.
  
  However, on the other side of the coin is the fact that such cases which in other states might be considered as “industrial total disabilities” might be similarly classified in New York. Additionally, according to Art Wilcox, the parties are serious about rehabilitation and meaningful return to work programs. So, misapprehension may, at the moment, be jumping the gun until we see how the legislation plays out in actual practice.
  
  As to continuing medical benefits indefinitely, again the devil is in the details. We have indefinite medical benefits now, but claimants have great difficulty accessing them once a carrier denies further care. Claimants also have difficulty securing counsel for medical benefit only claims since attorneys can not get paid for handling such cases, and they involve multiple hearings or depositions and appeals.
  
  Mr. Wilcox has indicated that various other safeguards have been put into protecting the claimant’s rights to medical care.
  
  One other feature of the legislation will be either a blessing – or a curse. The maximum benefit schedule (as shown above) does not begin to run until the claimant has been classified as having a permanent partial disability. At that point the carrier must pay their entire reserve into the Board’s Aggregate Trust Fund, meaning it loses the income producing potential of the reserve. It is obvious that claimant’s attorneys will do everything possible to prevent a classification for as long as possible to avoid the clicking of the clock once the period of maximum benefits starts to run. But, in many instances it will not be in the carrier’s interest to classify the claimant either as it may find it preferable to hold on to its reserves. No doubt that determination will be made on a case by case basis, but one way or another it portends a great deal of litigation on such questions as current degree of disability, change in condition, whether a condition is static and scheduleable. Additionally, since benefits can be extended beyond the schedule if there is a showing of extreme hardship, or total industrial disability, we can expect much litigation on those issues as well.
  
  
• Innovative programs are being established to get workers prompt medical treatment and to help them return to work;
  
  Obviously, very good, but the “devil is in the details” Is the objective is to get workers back to work at $7.00 an hour jobs flipping burgers, or is it to restore their ability to work at a job as remunerative as the one they became disabled from performing. Hopefully the latter. So far we have yet to see of these so called innovative programs instituted in any state. In fact, California is now in the process of reconsidering all of its so called “reforms.” Back in the 70’s similar pronouncements led to horror stories of claimants going through months of vocational rehabilitation (at insurance company expense) only to be retrained for jobs that were quickly becoming obsolete. According to the AFL-CIO safeguards are being put in place to prevent that from happening. Let’s hope so.
  
  
• Strong anti-fraud measures will be in place, including the ability to stop work on a job site where a company has failed to purchase workers’ compensation insurance for its workers, higher criminal penalties for violators and debarment provisions;
  
  Good! We’ve needed this for a long time. The legislation provides strong and costly penalties for violations such as failure to maintain compensation insurance, or payroll fraud or concealment.
  
  
• An expensive fund known as the Second Injury Fund that is now financed by assessments passed through to employers will be closed. 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;
  
  Good. The existence of the fund merely caused litigation, with carriers delaying cases while they tried to offset their liabilities. Since all carriers were contributing proportionately to the fund, in the final analysis, no company really gained anything but limited victories in such litigation. Employers weren’t aware the fund existed, so it did nothing to encourage them to hired handicapped workers. Moreover, its original objective…to promote hiring of disabled vets, has been largely supplanted by other state, federal and local programs which provide tax incentives for hiring the handicapped. By all counts, the Second Injury Fund no longer served any valid purpose. This is good for carriers, employers (it will cut litigation costs) and claimants (it will reduce delay).
  
  
• The Compensation Insurance Rating Board, which helps determine workers’ comp costs for employers, will sunset as of February 1, 2008. The Superintendent of Insurance will make a recommendation to the State Legislature in September 2007 as to what, if anything, should replace it.
  
  The Compensation Insurance Rating Board was esstnially a Board composed of representatives of insurance carriers who decided on each other’s rate increases and then made recommendations to the Insurance Department. Because it was an insider’s network it appeared that it was always asking for increases, but not providing justification for the increases. This change alone should save businesses substantial dollars.
  
  As part of the negotiated reform package, the Governor, and legislative leaders have directed the Superintendent of Insurance to ensure that these system savings are captured in premium rate reductions, beginning in the next rate setting cycle that concludes this July. This will require the Superintendent to engage the insurance industry on this subject in a way never done before. As the reforms phase in, reductions in premiums and assessments related to the Second Injury Fund are expected to reach double digit levels, providing significant relief to New York’s business community, particularly small employers for whom such costs have been a major impediment.
  
  This is good.
  
  In addition, after close consultation with the legislature, the Governor has directed the Superintendent of Insurance along with appointees of the legislature, business and labor to work with the Workers Compensation Board, the Department of Labor and legislative Task Forces to pursue a number of additional reforms administratively and to make recommendations about additional legislation. These important initiatives include:
  
  
• Gathering data on system costs. For years, the legislature and the public has had to struggle to understand the costs and the outcomes of the workers compensation system. There will now be transparency;
  
  This is good. We need this. Up until now legislators have not been able to get the true story when trying to make policy.
  
  
• Designing an expedited hearing process to reduce litigation and speed the time it takes for workers to receive treatment and return to work;
  
  The devil is in the details. One detail is a speeding up of the first meeting on a contested claim. Another detail has to do with permitting providers to access more treatment and diagnostic modalities without waiting for pre-authorization by foot-dragging insurance companies. Anything that removes barriers to treatment is a good move, and gets claimants back to work sooner. The law also puts greater emphasis on the ability of the employer or carrier to pay medical benefits for up to a year while contesting a claim. It sets a fee schedule for pharmaceuticals putting all providers on an even footing, except those with whom a carrier executes a direct contract. It allows carriers to compel claimants to use a carrier selected pharmacy or mail order program.
  
  
• Some suggestions for the regulations which still have to be written:
  
  1. Shift the burden of paying claimants’ attorneys fees to the insurance carriers where the lawyer successfully litigates a denial of treatment. Set forth a predictable fee schedule so carriers have knowledge of their exposure for such fees if they lose theto contest the medical care. At least if they pay the doctor promptly perhaps the claimant will get treated and return to work sooner.
  
  2. Permit claimants to use their medical plans when medical issues are contested and giving their health care carriers an iron clad guarantee of reimbursement of such expenditures when the compensation issues are resolved.
  
  Art mentioned several other safeguards that had been imported into the proposals.
  
  
• Designing by year-end new fact-based medical guidelines to replace New York’s current outdated system. In addition, in conjunction with the Workers’ Compensation Board, the Superintendent will design treatment guidelines and training for law judges.
  
  We had fears that this opens the door for imposition of the AMA Guidelines. These Guidelines are very stingy in assessing overall disability and have caused claimant’s to suffer severely reduced Workers' Compensation benefits in all of the other states that have imposed them. In states that have utilized the AMA Guidelines the objective has been to simply reduce benefits and typically the phrase “fact based guidelines” has been little more than a “code-word” for the AMA Guidelines. In a telephone call on March 2^nd Art Wilcox of the AFL-CIO produced assurances that such was not the case , but we have to wait and see. Schedule awards in other states have been sharply reduced. We don’t want to see that happen in New York.
  
  Additionally, although not mentioned in the Governor’s press release The proposals speak of mandatory settlements. But what interest does a carrier have in settling a case, when it knows its maximum exposure is limited anyway? And the idea of an expedited settlement is somewhat puzzling in view of the fact that the main obstacle to settlements is the Center for Medicare Services which requires a “medicare set-aside amount” that they approve be included in every Lump Sum Settlement. That approval process can take many months and is outside the control of the parties to the case.
  
  
• The proposal is silent as to the impact on the New City and State Pension Funds, both of which contain offsets for Workers' Compensation benefits in numerous disability pensions However, when the new “maximum benefit” period has been exhausted for future claimants, the pension funds will have to make up the difference. This has not yet been addressed, but the Controller should be concerned.
  
  The accord was hailed by business and labor advocates.
  
  Kenneth Adams, President of the Business Council of New York, said: “ This is a major step toward reducing the cost of doing business in New York State. It is a big win for improving our economic climate, especially Upstate.”
  
  Dennis Hughes, President of the AFL-CIO, said: “The New York State AFL-CIO is proud to have been part of the process and is immensely pleased with this agreement. Labor, business and political leaders joined together to forge an historic agreement for the common good of injured workers, the business community and all New Yorkers. This agreement not only addresses some of the most pressing needs and concerns of injured workers, but immeasurably improves a system long believed to be broken beyond repair. The New York State AFL-CIO is deeply indebted to Governor Spitzer and the leaders for their dedication throughout this process.”
  
  Hopefully, in return for labor’s major give-backs on permanency and medical guidelines, the Governor will at least appoint members of the labor movement to the NYS Workers' Compensation Board itself. Over the past 12 years the governance of the Board has been largely in the hands of the insurance industry.

Advocates concede that there is much good in the proposal, such as the rate increase, the elimination of the rating board and the second injury fund, optional supplementary disability coverage, increased penalties for employer fraud and increasing the dollar cap on permissible medical testing and radiological procedures. All are concepts that were long overdue. However the maximum benefit cap on benefits available to injured workers is a travesty.

Fusco, Brandenstein & Rada, P.C. partner Milan Rada observed that “the legislation is silent as to the impact on the New City and State Pension Funds, both of which contain offsets for Workers' Compensation benefits in numerous disability pensions. However, when the new “maximum benefit” period has been exhausted for future claimants, the pension funds will have to make up the difference, and that could have an impact on the solvency and management of the funds, completely outside the control of the NYS Controller.” Rada represents several law enforcement unions and feels the results of the legislation can be potentially devastating to many of his clients.

Richard Brandenstein, who heads the firm’s Workers' Compensation Department points out that: “Few workers have ever been found to be “totally disabled” in New York State. By and large, the on-going payments to “partially disabled” workers have actually been going to those, who under any other reasonable standard, such as that of the Social Security Administration, would have been considered “totally disabled.”

The traditional “Total Industrial Disability” standard to which the new statute alludes, has usually been reserved for severely disabled workers who always done very heavy work – for many years, have minimal education and do not have English as their primary language. An example would be a 58 year-old Spanish Speaking bricklayer with a second grade education in his native land, who injures his back and can not longer do heavy lifting, bending, carrying, and standing. Most workers in New York, will find it difficult to prove a total industrial disability under the generally accepted criteria.”

Managing partner Victor Fusco observed: “We have workers with job-related asbestosis and pain, but who under Board standards is “partially disabled!” He is not getting better, he is progressively getting worse, developing muscle wasting and neurological damage as time progresses.”

“Workers such as this may find lighter jobs, or reduce the amount of hours they work, because they can’t get through a day. They are not “totally disabled” because they are “working” but they have ongoing disability which gradually worsens. Others may have had to give up their jobs, but are still only partially disabled other lung diseases. They get sicker every day. They work until they can no longer work, and then suffer every day as every breath gets more and more difficult. Or, take the guy with three spine surgeries who is in chronic pain, but not bedridden. They theoretically could do something, but can’t find any job within their remaining physical capacities. Some have been refused vocational rehabilitation services because they are considered too “old and un-educable ” and not a worthwhile investment of voc-rehab funds, or too debilitated to complete a program. How do you tell these workers that after ten years they are no longer eligible for compensation benefits.”

These workers do not the type of impairments that stabilize in time. That is why they were removed from the disability schedule when our compensation law was originally conceived. And when these workers lose their benefits, who is going to pick up the tab? Taxpayers! Critics have characterized these “reforms” as a wonderful scheme for businesses to transfer their liabilities to the taxpayer.

Proponents however claim that without such reforms, few business will be able to keep their doors open much longer. The costs of doing business and downward price pressure from global competition, they claim, are stifling job growth, and every step possible needs to be taken to reverse the trend lest there be no jobs in New York.

The present legislation was an attempt to reconcile these two opposing positions. Only time will tell if it succeeds.