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In recent years, businesses throughout the state have reported debilitating increases in workers’ compensation claims as a percentage of their payroll, a trend that endangers competitiveness and economic development in the state. Employers in South Carolina with four or more employees are required to carry Workers’ Compensation insurance. In 2001, the employers of this state spent about $388 million on workers’ compensation premiums. In 2005, these employers spent almost $665 million, on workers’ compensation premiums. That’s an increase of 71% , or nearly $277 million in just four years.
One culprit is the lack of competition among insurance providers in South Carolina. This is due, in part, to a shortage of providers willing to write workers’ compensation insurance in a state whose unfavorable policy climate lowers their cost effectiveness and reduces their profit margins.
In addition to charging monopolistically driven higher insurance rates, South Carolina insurers are forced to contribute to the Second Injury Fund, a pool of money intended to reimburse insurers and self-insured employers for claims paid to workers with injuries that may, or may not, have aggravated a pre-existing injury. Some 98,000 businesses in the state contribute to the Second Injury Fund, yet only a handful of them actually benefit from it. The high-cost assessments discourage insurance providers’ willingness to write policies in South Carolina. Those that do must pass along the costs to businesses in the form of even higher rates. It’s a vicious cycle.
Insurance costs represent the second-highest expenditure, after wages, for small and medium-sized businesses. The current state Workers’ Compensation system places an exclusive and unfair burden on business without regard to actual culpability. And escalating workers’ compensation insurance rates are jeopardizing the ability of business, particularly small employers, to compete and prosper.
In July 2005, the National Council on Compensation Insurance (NCCI) proposed a nearly 33 percent average rate increase for employers in South Carolina. It is the third year in a row the organization called for double-digit increases. The organization cited soaring medical costs, medical and personal injury lawsuit awards, and slow settlement of cases in its rationale for the recommendation.
In response to the NCCI recommendation, the Spartanburg Area Chamber joined with the South Carolina Chamber and the SC Department of Consumer Affairs to file a Request for Public Hearing with the state Department of Insurance and the SC Administrative Law Court in order to obtain and review data that the NCCI used in calculating its proposed rate increase. In addition, the governor created a task force to study the workers’ compensation system.
The Second Injury Fund already represents in excess of $400 million in unfunded liability. Established after WWII to encourage the hiring of workers with pre-existing disabilities, and long before the Americans with Disabilities Act, the Fund has now outlived its purpose, and places an unnecessary financial burden on most businesses. Recognizing that, 17 states already have abolished their second injury funds.
Already, at least two companies that sell workers’ comp policies have scaled back their operations in the state and other companies have expressed similar intent. In September 2005, the state Department of Insurance rejected the 33 percent rate hike, saying that it was unjustified under state law and would lead to excessively high rates.
Throughout the 2006 legislative session, the workers’ compensation reform bill languished in committee, suffering through numerous amendments and modifications. Committed to passing comprehensive reform, the various chambers and allied organizations refused to accept anything less than true reform and were forced to abandon support for a vastly watered down bill.
In early October 2006, a state judge ruled that the final premium increase would be 18.4 percent, much less than the proposed increase, but still an astounding increase for South Carolina businesses already strapped by a broken system.
In order to reform the South Carolina Workers’ Compensation System in a manner that stabilizes runaway costs, abolishes an antiquated Second Injury Fund, implements sound accountability measures, and maintains the integrity and intent of the original Workers’ Compensation Act, the Spartanburg Area Chamber generally supports passage of the Workers’ Compensation Reform Act of 2007 and specifically recommends that the state:
- Establish an independent workers’ compensation appellate panel, outside of the Commission to hear workers’ compensation appeals in lieu of a full Commission panel. This would allow commissioners to focus attention on resolving claim disputes and, thereby, reducing the lag time for such hearings;
- Conduct an orderly dissolution of the Second Injury Fund;
- Align workers’ compensation definitions for “impairment” and “disability” with AMA guidelines. Currently, Commissioners can cushion awards in cases that are as much as 300 percent out of line with the AMA. It has been proven that unpredictability and instability in decisions create unreasonable, unfair rates that limit competition;
- Establish fee schedules, similar to those for inpatient services, for outpatient and pharmacy expenses to ensure consistent, reasonable charging;
- Reverse the Brown v. BiLo decision, which currently prohibits any contact between an employer’s representative and the claimant’s health care provider. Allowing contact between an employer’s representative and the claimant’s healthcare provider would help expedite the investigation process, help workers return to work more quickly, and reduce claim costs;
- Reverse the Tiller v. National Health Care decision, which dismisses the need for expert medical testimony to establish the cause of an injury or illness in medically complicated cases. Expert opinion and sound medical evidence absolutely must be considered before judgments can be made in medically complicated cases;
- Address the issue of “repetitive trauma” versus the normal aging process through a revised definition of “occupational disease;” and,
- Eliminate the presumption that a 50 percent disability rating to the back entitles a claimant to 100 percent disability.
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