Spiraling Cost of Workers' Compensation
Who benefits from high payments? Less than half the monies set aside by employers in Maine go as direct benefits to the injured
LISBON FALLS, MAINE
STARTING up a new plastics recycling plant in this small town northwest of Portland, Maine, has had its challenges for young entrepreneur Melanie Meyer.Skip to next paragraph
Subscribe Today to the Monitor
She and her brother have worked together for the past one-and-a-half years to keep their small business afloat during tough economic times. Despite her plant's safe work environment and recent investments in safety equipment, she had to lay off half of her work force when she was hit with a 10.5 percent workers' compensation rate increase.
"When economic times are such as they are right now, those worker's comp rates can really be a matter of your going out of business or staying in business," Ms. Meyer says.
Workers' compensation is a hot political issue in Maine, with rates here among the highest in the country. Business owners like Meyer are frustrated with a system that that they say burdens them with increasingly high costs. Some companies have already left the state.
And the problem of high costs is not unique to Maine. Employers all over the country, including state governments, are struggling to keep up with a system that seems to be running out of control. Escalating medical costs, time-consuming litigation, administrative backlog, and fraud have all contributed to the problem.
State governments are struggling to come up with solutions to the problem. According to Governing magazine, workers' compensation is one of the top ten state legislative issues in 1992.
The workers' compensation system, administered by state governments, provides cash benefits, medical care, and other assistance to workers injured on the job. The idea is that employers pay injured workers' costs through insurance to avoid expensive, time-consuming legal battles.
"I think the state has got to start rewarding companies for a good job rather than continuously assuming that you're not running a safe operation," Meyer says.
Where does all the money go? It doesn't always end up going to injured workers, say critics.
Of the total funds that go into the workers' compensation system in Maine, for example, only about 40 percent make it into the hands of injured workers, says Willis Lyford, press secretary for Maine Gov. John McKernan (R). A large chunk of money ends up going to lawyers and the health- care industry, he says.
Athough rates vary widely within states, the average employer's contribution was 1.26 percent of payroll in 1984 while by 1989, it had risen to 2.25 percent, according to John Burton of Rutgers University, who edits a newsletter on the topic.
Insurance companies as well as employers say the system needs to be reined in to keep costs down. Liberty Mutual, the country's largest private underwriter of worker's compensation, pulled out of Maine, Rhode Island, and other states where rates were not considered high enough for the company to remain competitive. The three remaining carriers in Maine are threatening to leave the state.