December 13, 2019

Workers’ comp still big burden despite reforms

AUGUSTA — The state Workers’ Compensation system continues to be a significant burden on business owners, despite two major efforts to improve the program.

Owners say the soaring costs of insuring their workers against on-the-job injuries are forcing them to curtail operations, and in some cases to move out of the state.

Business groups in the Lewiston area, in York and Aroostook counties and in Camden are organizing to focus attention on the problem. And business leaders plan a major campaign next year to persuade the Legislature to lower the cost of Workers’ Compensation insurance premiums.

Tim Hall, a Camden businessman who is organizing his colleagues in that area, said there would be a march on the State House if the Legislature does not provides some relief.

Business owners cited several examples of the hardship facing them.

Paul Johnson at Norway Footwear Corp. said the cost of providing Workers’ Compensation insurance for his 200 employees climbed from $52,461 in 1988 to $289,116 this year, forcing him to lay off 30 people because of the slumping economy.

David Hughes, whose company builds towers for cellular telephone transmissions, said workers’ comp rates of $51 per $100 of payroll convinced him to move the business to New Hampshire.

“I hope to grow. That’s impossible in Maine,” he said.

Ted Johnston of the Maine Forest Products Council says the forestry industry is turning more and more to mechanical harvesting because premiums for woods workers have now reached $50 per $100 of payroll. In effect, employers are paying three salaries for every two workers.

The number of workers in the woods has steadily declined, from 6,000 in 1985 to 3,000 last year, partly because of the costs of insurance.

“We’re not going to go out of state because the trees are here and they grow like crazy. But there’s more mechanical harvesting. That displaces jobs,” Johnston said.

Timberland Footwear of New Hampshire closed its Bangor operation, partly because of the premiums.

“We can make shoes in the Dominican Republic for $1.44 and we’ve got to pay 96 cents here before we even put the leather on it,” said plant manager Mike Meierdirk.

There have been problems relating to the Workers’ Compensation system for at least 10 years.

Then-Gov. Joseph E. Brennan declared the system “more balanced and practical” following a 1985 package of benefit cuts and rate reductions that was intended to ease an earlier crisis.

But in 1987, insurance companies complained that they were losing millions because of rate freezes built into Brennan’s 1985 plan, and they threatened to abandon the Maine market.

Gov. John R. McKernan called lawmakers into special session, and they approved a package of changes that included cutting costs by 30 to 40 percent, primarily in workers’ benefits. Benefits for permanent but partial injuries could be provided only for 7 1/2 years and maximum benefits were frozen at $447.92 weekly through 1989.

McKernan’s plan allowed insurers to increase their rates, which had been cut by 8 percent in 1986, frozen for one year and tightly regulated for two more years under Brennan’s reform package.

“We got the system back in balance but at a very high cost,” said state Insurance Superintendent Joseph Edwards.

He said that about a half dozen insurers, representing 40 percent of the original market, remained in Maine as a result.

Since the 1987 changes, rates have risen, but less than insurers wanted.

Edwards granted a 25-percent increase in 1988 and a 22.5-percent increase in 1989. In April of this year, the insurers said they were still losing money and asked for an additional 26.5-percent increase. Edwards gave them 4 percent.

The maximum weekly benefit in Maine today is $471.83, compared to $474.47 in Massachusetts and $619.50 in New Hampshire.

The cost of providing Workers’ Compensation in Maine is hovering around $600 million, according to Edwards.

Given Maine’s work force of approximately 590,000, the average cost of premiums is about $1,000 per worker per year.

Edwards agrees the rates are high. He would like to see tighter controls to prevent fraudulent claims, over-utilization and overcharges for medical services. And he wants steps taken to cut the cost of litigation.

Unlike traditional health packages, there are no deductibles and no incentives to demand cost-efficient care in Maine.

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