An intractable problem. Rate increases of 30 percent threatening the stability of employers. Inefficiency and lack of oversight. Multiple groups pushing the system in different directions.
Health care costs in 2011? Nope. Try workers compensation issues in Massachusetts two decades ago.
Long before health insurance premiums became the defining challenge facing Bay State employers, the Massachusetts workers compensation system reached the point of collapse and nearly took with it a significant portion of the Massachusetts economy.
The close parallels between the workers compensation crisis of 1991 and the health insurance crisis of 2011 provide a glimmer of hope that the same business, government, labor and professional communities that joined together to resolve workers compensation at the start of the Weld administration can do the same with health care at the dawn of the second Patrick administration.
The workers compensation/health care comparison came to mind this week as the insurance industry and state officials announced an agreement that will keep workers compensation rates unchanged for 18 months. The industry’s Workers Compensation Rating and Inspection Bureau initially sought a 6.6 percent increase, but reached an accord with the state Division of Insurance and the attorney general to hold rates steady through August of 2012.
That’s great news for employers struggling with a balky economic recovery. It’s even better news when you consider that average rates paid by employers for workers compensation insurance – which covers the medical treatment and lost wages of employees injured on the job – have dropped more than 60 percent since Governor William Weld signed the landmark reform law on December 23, 1991.
It’s easy to forget that the workers compensation crisis of 1991 was as pervasive and seemingly hopeless as the current discussion surrounding health costs.
Workers’ compensation insurance costs had surged more than 100 percent from 1988 to 1991, raising the cost of insurance in the private marketplace to approximately $1.6 billion, not counting the self-insured market. The substantial benefit increases and sharp rise in claims throughout the late 1980s, coupled with the Division of Insurance’s resistance to providing insurers with the rate adequacy they sought, caused insurers to stop writing voluntary policies.
Companies and workers fled Massachusetts seeking more predictable cost structures in other states. Massachusetts ended up bearing the brunt of a recession that washed away 11.6 percent of the commonwealth’s employment from 1989 to 1992 (365,000 jobs).
The severity of the workers compensation crisis ultimately prompted employers, government and labor to undertake a remarkable reform that became a model for the rest of the country. The 1991 reform act limited benefits that in many cases had exceeded what workers earned while on the job and made administrative reforms to improve the efficiency and fairness of workers compensation cases.
In the interests of full disclosure, as part of our effort to address the crisis, AIM developed a workers compensation insurance company named A.I.M. Mutual. The company now provides workers compensation coverage to thousands of employers in Massachusetts representing almost 10 percent of the insured marketplace.
By the mid 1990s, the insurance commissioner began to reduce insurance premiums. Initial claims at the Department of Industrial
Accidents fell from nearly 41,000 per year in 1991 to fewer than 19,000 in 2000. More and more insurers began to offer policies in Massachusetts, helping to create a dynamic market that further reduced costs and enhanced efforts to improve workplace safety and protect employees.
John Gould, my predecessor as president of AIM, wrote at the time that "Passage of the workers' compensation reform in late 1991 was the turning point in what had been the most severe recession our state had seen since the Depression of the 1930's. It is highly encouraging to see that those responsible for this important business overhead area continue in a spirit of cooperation that will serve our economy in the periods ahead."
The same spirit of cooperation will be required to solve a health care cost spiral that is eroding the economic foundations of the commonwealth. Massachusetts again served as a national model with the Health Care Reform Act of 2006, but addressing the costs faced by employers looking to provide health insurance to workers is a daunting challenge filled with doctors, hospitals, insurance companies, federal Medicare and Medicaid programs, world-renowned research institutions and individuals struggling with premiums that seem to accelerate faster each month.
The stakes are enormous. A recent article in the Boston Globe about a Franklin company detailed the degree to which skyrocketing health insurance premiums and other high employment costs discourage small companies from hiring new workers.
But the example of our response to the workers compensation issue makes me optimistic that Massachusetts will again roll up its sleeves to solve a problem that stands in the way of economic opportunity for all our citizens. Leading the nation is nothing new for Massachusetts. Here’s hoping that commentators writing in this space 20 years from now will look back with admiration at the business and political leaders of 2011 who had the courage to create a health-care delivery system that keeps both patients and employers out of intensive care.