By Peter Hull, The Post and Courier
Published July 10, 2006
It makes no difference whether Charleston house painter Kevin Miksch kneels down to paint a baseboard or climbs a 20-foot-tall extension ladder outside a building. He pays the same workers’ compensation premiums either way, he said.
If the ladder is secure and complies with all necessary safety standards, it makes no difference – he still pays the same premium.
If one of his employees falls from the ladder and is injured, it doesn’t matter how safe the job site was, Miksch’s premiums are likely to go through the roof once he makes a claim.
That increase could be enough to put him out of business, he said.
If he pays a painter $30,000 a year, Miksch pays more than $5,000 in workers’ comp premiums. Add general liability coverage to the mix and Miksch’s costs double.
Ask Miksch what he thinks of a proposed 32.9 percent average increase in workers’ comp premiums in this state, and he’s almost lost for words.
“If the rates go up, the increase could push me over the edge,” said Miksch, who owns Bolder Colors painting and decorating service.
Workers’ comp covers medical costs and some wages for workers injured on the job. All businesses in the state with four employees or more must carry the insurance.
Miksch’s firm falls below that threshold, but he provides the insurance anyway. If he doesn’t cover his guys, one slip could cost his family everything they own.
He could provide health insurance instead and likely cover a worker’s entire family, but health insurance would cover only medical bills, not long-term disability payments.
“Everything’s in jeopardy,” he said. “I have workers’ comp solely to protect our assets.”
Like many of the state’s small business people, Miksch is waiting for a state judge to rule on whether rates should increase and by how much. A ruling could come any week now.
The insurance industry-backed National Council on Compensation Insurance, the company that recommends workers’ comp premiums in 36 states, including South Carolina, says the increase is needed because of a shortfall in the amount insurers receive in premiums versus the amount they pay out in claims.
Critics of the increase have raised concerns that the data NCCI used when it recommended the increase a year ago was flawed. Some even say the workers’ comp system in South Carolina is falling apart at the seams.
Belinda Ellison, a Lexington-based workers’ comp attorney and former president of the South Carolina Bar Association’s workers’ comp section, said during a week of hearings into the proposed increase that the system began to fall apart after 2000.
At the April hearings, NCCI, the state Department of Insurance and other interest groups argued before an administrative law judge for and against the almost one-third increase.
Ellison said the system was well funded in the 1990s and processed claims smoothly and efficiently. But in 2000, budget cuts resulted in staff reductions at the Workers’ Compensation Commission, and were accompanied by several vacant commissioner positions and an aging, almost nonfunctional computer system.
The result was a dramatic increase in the length of time it takes to process cases and hold hearings, factors that most experts say contributed to higher workers’ comp costs, Ellison said. Those negative factors correspond to the years 2002 and 2003, from which NCCI drew the data for its proposed increase.
Ellison said that in 2005 additional funds were given to the commission for staff and a new computer system. The result was that cases and hearings move faster, signs of a more efficient system that helps keeps costs down.
A different approach
In at least one state where NCCI does not recommend rates, fundamental changes to the workers’ comp system have paid huge dividends, officials there say.
In 1991, Pennsylvania saw a 52 percent increase in rates that sent a wake-up call to state legislators. Over the next two years, state lawmakers introduced changes that included a comprehensive workplace safety program, with credits for employers who implemented tighter standards, and a revamped medical fee schedule that generated savings of almost 40 percent.
Some 13 years after the changes, employers are reaping the benefits, said Timothy Wisecarver, president of the private nonprofit Pennsylvania Compensation Rating Bureau and the Delaware Compensation Rating Bureau Inc., separate companies that recommend workers’ comp rates in those two states.
In 2005 and 2006, workers’ comp rates in Pennsylvania fell 2.8 percent and 8.5 percent, respectively, Wisecarver said. The underlying costs of workers’ comp have remained stable over recent years, he said. The average claim paid out has increased slightly, but the number of claims has fallen, so they balance out, he said.
“Before, we had high rates that still weren’t enough to support the system,” Wisecarver said.
In Delaware, which has not yet implemented the same measures as Pennsylvania, rates fell 6.7 percent in 2003 and rose 16.7 percent in 2004 and 7.1 percent last year.
Even without NCCI’s proposed increase, there are still improvements that need to be made to South Carolina’s workers’ comp system, said Frank Knapp, president of the state Small Business Chamber of Commerce, which opposes the proposed rate increase.
The state needs to set up better ways to regulate how data is used for rate increase recommendations, he said. The system should be geared to work for the state, not the insurance industry, Knapp said.
“NCCI answers to the insurance companies,” he said. “In Pennsylvania, evidently, the rating bureau there answers to the state.”
Knapp’s group has pointed to problems with NCCI data that caused South Carolina policyholders to be overcharged for the last three years. NCCI and the insurance department have said that only a small number of job classifications were affected, and the discrepancies did not influence NCCI’s latest proposed rate increase.
However, news of the overcharge was not made public when the department discovered the discrepancy last July, just weeks before NCCI filed for the latest rate increase. The department only confirmed the error last month when The Post and Courier sought information about it.
But the small business chamber and the state consumer advocate’s office have asked the judge to review NCCI’s proposed increase and to make available the information that could show how many of the state’s employers overpaid their premiums and by how much. The judge has yet to comment on the matter.
Steady as she goes
As far as the Department of Insurance is concerned, the system is performing satisfactorily.
In the fall and winter of last year, the state Workers’ Compensation Advisory Board met on numerous occasions to discuss NCCI’s performance and the state’s workers’ comp system. The 11-member board includes Eleanor Kitzman, head of the insurance department, and five insurance industry officials. One advisory board member, Charles Potok of insurance company Companion Property and Casualty Group, also sits on NCCI’s board.
The advisory board concluded that problems that existed with NCCI in the past have been addressed and its performance has improved significantly, according to a letter from the advisory board released last December.
A department spokeswoman declined to comment further last week.
The situation has left painter Miksch dumbfounded. After more than 10 years on the job, he has yet to see even one serious accident – thankfully, he says. But while he gladly gives good painters a job, he lives in fear that one significant claim, such as a death on the job, would raise his premiums so steeply it would put him out of business forever.
“There’s no way I could have a painting company again,” he said.
Reach Peter Hull at 937-5594 or firstname.lastname@example.org.
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