Monday, January 19, 2015

What is Comp Worth?

I recently had an interesting conversation about changing workers' compensation benefits in various states. There is an interesting study done every two years by the Oregon Department of Consumer and Business Services ("DCBS"), which measures the cost of workers' compensation in the various states. 

It is focused on the premium cost to cover workers' compensation, rather than the cost of actual expenditures for benefits. One criticism of the study is that this process does not include the segment of the market that is self-insured. As this segment does not have insurance, it likewise lacks insurance premium. The volume of risk that is self-insured in a state could thus affect the persuasiveness of the Oregon study results. 

Discussion of this report at the Southern Association of Workers' Compensation Administrators' (SAWCA) All Committee Conference last fall in Hilton Head led to a discussion of what benefits are afforded in the various states. In other words, what are the values of respective state's benefit payouts, for which carriers are assuming risk in exchange for those premiums?

California had ranked first, the most expensive premium state in the most recent DCBS study. Officials there were quick to respond with claims that California comp costs what it does, essentially, because it is worth it. They argue that the quantum of benefits in California is superior and thus worth the cost compared to other states. The lowest 2014 rate was North Dakota at $.88 per $100 of payroll, and California was the highest at $3.48. 

California seems to argue that their benefit package is almost four times better than North Dakota's ($.88 x 4 = $3.52). One simple variable to isolate may be the wage rate. If the wages are higher in California than in North Dakota, then the indemnity payments would likewise be expected to be higher on a weekly basis (intensity) as well.  

Studying the value of the benefit package would be difficult. There are obvious system components that could easily be valued, such as monetary benefits afforded. This would likely have to be considered in terms of both intensity (per week) and duration (how many weeks). Medical care might be measured in terms of the quality of care afforded, but that is more subject to interpretation or discussion. Valuing medical care might involve consideration of a vast spectrum of variables. 

In the end, it is difficult to say what the market value is for benefits within a specific jurisdiction. Possibly, with a great deal of time and some academic interest, one might value the "market basket" of benefits flowing from some hypothetical injury/recovery. In other words, an exemplar injury such as a torn meniscus, with two surgeries, 8 weeks of physical therapy, 6 months of work restrictions, and a permanency of x% to the whole body might be valued under each of the 51 U.S. jurisdictions for a comparison. 

For validity, such a comparison would likely need to be a broader in perspective, with perhaps similar components comparing a defined back or neck injury, an upper extremity injury, etc. With a spectrum comparison of various injuries, a valid comparison of the value of benefits might be achieved. That would be interesting, but also time consuming. It is the sort of thing for which data already exists. But accumulating and examining it would require resources.

Valuing other factors might be less practical. Is there value to the injured worker in physician choice? Is there value to the injured worker in attorney representation? Is there value in system efficiency, the rapid delivery of benefits? There are multiple topics which might be determined important enough to include in such an analysis. Once deemed appropriate for inclusion, how would they be quantified?

One measure that could be addressed relatively simply is the intensity of indemnity benefits. That is, ignoring the potential duration of benefits, what is the maximum value of a week of benefits in each state. Most states have a maximum compensation rate. The rate is adjusted periodically. In Florida, it is adjusted annually. Currently, the maximum compensation rate in Florida is $841.57, effective January 1, 2015.  How does that compare with other states?

Following the conversation in which the Oregon Study was raised, I began searching for a resource listing all of the state maximum compensation rates. States are not uniform in their processes; not every state changes their rate annually. There is a Federal resource which lists the most current data known to Social Security regarding the maximum compensation in each state. They are presented at the end of this blog post in order from lowest to highest.

The lowest will not surprise some, it is Mississippi at $454 per week. Comparing that rate to the Florida maximum effective at the same time (01.01.14), Mississippi was about 55% of Florida's $827. 

The highest on the list will likely be a surprise. Not New York, California, Connecticut or the like. The highest on the list is Iowa at $1,543 as of July 1, 2013. So, Florida's 2014 maximum weekly rate is about 54% of Iowa's. Iowa has not adjusted since the summer of 2013; with the 2015 increase in Florida's maximum rate to $842, Florida is currently about 55% of Iowa. 

The lowest rate is about 55% of Florida's. Florida is 55% of the highest. Some would argue that this evidences Florida in the middle of the spectrum. Others would be curious as to the median and mean maximum rates and how Florida compares. The median maximum rate is $843 and the average maximum compensation rate is $888.00. So Florida's maximum rate is currently right on the median, and slightly below average. 

Only one state is below $500, Mississippi. Only two are between $501 and $600, Georgia and Kansas. Between $601 and $700, are Idaho, Arkansas, Louisiana, Indiana, Arizona, Delaware, South Dakota, and Montana. Between $701 and $800 are Maine, Nebraska, South Carolina, West Virginia, New Mexico, Kentucky, Hawaii, Utah, and Alabama.  

Between $801 and $900 are Oklahoma, New York, Michigan, Nevada, Florida, New Jersey, Ohio, Texas, Missouri, Wyoming, Oregon, Colorado and Wisconsin. Between $901 and $1,000 are North Carolina, Tennessee, Pennsylvania, Virginia, Minnesota, and Maryland. Between $1,001 and $1,100 are Rhode Island, California, and North Dakota. 

Between $1,101 and $1,200 are Alaska, Vermont, and Massachusetts. Between $1,201 and $1,300 Washington state is alone. Between $1,301 and $1,400 are Illinois and New Hampshire. Between $1,401 and $1,500 are the District of Columbia and Connecticut. Above $1,500 is Iowa alone. 

An interesting distribution. 

Having discussed the intensity of benefits, it is critical to reiterate that this is a simplistic comparison of Florida to other states based solely on a single facet of workers' compensation. It is neither an exhaustive comparison of the value of workers' compensation, nor competent as one. 

It examines one element that could be used to determine the value of compensation, if an analysis was undertaken which also included factors such as the duration of benefits, potentials for reductions in benefits (safety rules, drug-free workplace statutes), volume of medical care, value of medical care, and so much more. Nonetheless, it is interesting.

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