Today, premiums for workers’ compensation insurance are 25% lower than they were 10 years ago. As state government struggles to administer its portfolio of social insurance programs, the surprising bipartisan success story of Minnesota’s workers’ compensation program, after decades of controversy, may serve as a useful guide.
Those with long memories will recall Minnesota’s epic workers’ compensation legislative battles, precipitated by annual double-digit premium rate increases. In 1977 insurers proposed a whopping 67.5% premium increase. From the late 1970s through the early 1990s the cost of workers’ compensation insurance was a pre-eminent pain point for employers.
At the State Capitol, legislators struggled to find a politically viable remedy. As a young House staffer at the time, I witnessed an endless parade of business groups pleading for relief. When I moved to an in-house legal practice representing Minnesota’s then largest insurer at the capitol, I had a front-row seat as organized-labor and business were at each other’s throats during the early ’90s.
After more than a decade of often bitter debate, in 1992 and 1995 the Minnesota Legislature enacted bipartisan comprehensive reform. While the legislation resulted from a bare-knuckle process, its substance was carefully thought out. A number of studies had been commissioned from disinterested groups, including the Legislative Auditor and Citizens League, which effectively diagnosed system failures and built consensus for the ultimate enactment.
The ’92 legislation, implemented through extensive rule making, tackled medical costs well before health care became such a big part of the broad public policy debate. Fee schedules, practice parameters, managed care and other measures addressed what has become over half of the system’s costs. The ’95 legislation did the heavy lifting by comprehensively changing wage loss benefits and eliminating many well-intended benefit provisions of the late ’70s and early ’80s that had become unforeseen cost drivers.
The ’95 legislation also established the bipartisan Workers’ Compensation Advisory Council (WCAC). The WCAC is composed of key stakeholders — representatives of employers and employees — to regularly meet and agree on any new legislative changes before enactment. The chief workers’ compensation regulator, the Commissioner of the Minnesota Department of Labor and Industry, leads the group, which includes legislators of both parties. Stakeholders such as insurers, medical providers and rehabilitation consultants participate as advisers, but not as decisionmakers.
Although I was initially skeptical of this process, I now appreciate the opportunity for my clients to address complex issues with WCAC members grounded in the issues, allowing adequate time to consider the implications of changes.
Today, a quarter-century since enactment of these major reforms, the process works remarkably well:
• Minnesota’s premium base rate has declined 24% since 2010 and 42% since 1997.
• Minnesota enjoys a highly competitive workers’ compensation insurance market with only 4.2% of premiums written by the high-risk pool, and over 20 insurers writing 1% or more of Minnesota’s total written premiums.
• The number of claims filed (claim frequency) has declined, with 4.1 paid claims per 100 workers in 2017, which is 53% lower than 1997.
• The average cost of a claim (claim severity) has actually increased and offsets the reduction in claim frequency. Adjusted for average wage growth, indemnity benefits (dollars paid to injured workers) per claim were 6% higher in 2016 than in ’03; and medical benefits (dollars paid to medical providers) per claim were 4% higher over this same time period.
The workers’ compensation cost stability does not mean benefits have been unfairly suppressed. To the contrary several benefits expansions, as approved by the WCAC, were enacted during the 2000, ’08 and ’13 legislative sessions. These expansions, however, were carefully calibrated to not precipitate large cost increases.
No system is perfect. However, Minnesota’s workers’ compensation system works remarkably well. Policymakers can look to this historical bipartisan process when addressing struggling programs today … and this is something no one would have suggested 25 years ago.
Pete Thrane is a partner at Stinson, LLP, where he chairs the firm’s health care and insurance division.