1.3 percent cut OK'd for key part of work comp

By Deborah Adamson
Advertiser Staff Writer

After two years of back-to-back rate increases for workers' compensation insurance, the state has approved a 1.3 percent reduction for 2004 in the biggest component of the premiums, but businesses say much more needs to be done.

The state's insurance division said the rate cut affects the "loss cost" portion of workers' comp rates, which directly covers claims and makes up 60 percent of the premium that employers pay.

The remainder of the premium amount depends on the insurers' other costs, such as reinsurance and taxes. As such, there is no guarantee that businesses will see a decrease. Still, some say it's better than an increase.

"This is good news," said Insurance Commissioner J.P. Schmidt. "But workers' compensation premiums are still a tremendous burden on our businesses and there is a lot of work we need to do to improve the system and bring the cost down."

The National Council on Compensation Insurance, or NCCI, which represents the industry in setting rates, recommended that the decrease be based on a 7.2 percent drop in loss costs for the general contractors industry. Schmidt said a decline in utilization and the number of claims filed lowered the costs.

The insurers can choose whether to pass the decrease along to their customers. If they do not, they will have to file separately for rate approval, Schmidt said.

Linda Gilchrist, president of Island Insurance, said her company is still reviewing the approval and how it will affect its premiums. The insurer writes $30 million worth of workers' comp insurance in Hawai'i.

"If there will be a decrease, it would be very small" since the modest state-approved cut just reduces one portion of the rates, she said.

Sen. Sam Slom, R-8th (Wai'alae Iki, Hawai'i Kai), who is also president of Small Business Hawai'i, welcomed the rate cut but believes "a lot more needs to be done." More steps should be taken, for example, to cut down on "significant" instances of workers' comp fraud, he said.

But Lowell Chun-Hoon, a labor attorney at King Nakamura & Chun-Hoon, said the extent of fraud that actually occurs is "vastly overestimated." Moreover, any allegations of widespread fraud frighten workers into not filing legitimate claims.

When a worker is injured on the job, the employer is notified and can accept or deny the claim, he said. If the injury has witnesses and is not "controversial," Chun-Hoon said, the resulting claim usually is accepted. However, "stress claims are almost unanimously rejected."

Last year, bills to restrict stress-related workers' comp claims were introduced in the House and the Senate but were not heard. They will be reintroduced over the next two weeks as part of the governor's workers' comp package of reforms.

The Chamber of Commerce of Hawaii plans to support a similar bill that would give employers the right to direct workers to specific doctors and other healthcare providers for the first 120 days after a workplace injury.

Companies want to curtail abuse of workers' comp privileges, which critics of the current system say is a temptation that lets an employee seek care from any type of provider.

Christine Camp Friedman, chairwoman-elect of the chamber, said the system also doesn't motivate employees to quickly return to work. When they are injured or feel stressed, they can stay out for as long as a healthcare provider agrees while collecting 66 percent of their gross pay free of taxes, she said.

But Chun-Hoon said there's a statutory limit to benefits received per year — in 2003, it was $580 a week.

Also, the average cost of medical care for employees who miss work because of a workplace injury in Hawai'i is the second lowest among 35 states studied by the NCCI, Schmidt said.

Diane Johnson, who runs All Paradise Tree Service with her husband, said that after some employees filed workers' comp claims, her premiums doubled in one year.

"I think workers' comp needs a lot more reform than that," Johnson said of the latest rate reduction. "I don't think they're doing enough."

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.