By Dan McCue
Staff Writer

Statistics may never lie, but disagreements over what statistics to count and how the results should be interpreted is muddying the march toward comprehensive reform of South Carolina’s workers’ compensation system.

“What we’ve had since last July, when a massive increase in the workers’ comp rates businesses have to pay was proposed, is an argument waged on what we contend is potentially flawed and unverified data,” said Frank Knapp Jr., president of the South Carolina Small Business Chamber of Commerce.

“Certainly, the state’s workers’ compensation system is in need of reform, but if we continue to talk about some of things we’re talking about and ignore the elephant in the room, we’re going to miss an opportunity for real, meaningful reform,” Knapp said.

Gov. Mark Sanford and a number of other state lawmakers have made comprehensive reform of the state’s workers’ compensation system, including the repeal of the Second Injury Fund, a top legislative priority this year.

If they fail, a blue ribbon panel has warned the state risks losing new business to other states with less volatile workers’ compensation rates.

How critical has the situation become?

According to Lewis F. Gossett, president and CEO of the South Carolina Manufacturers Alliance, the state’s manufacturing sector can no longer withstand the dramatic increases it has seen in workers’ compensations rates.

“Unless we enact comprehensive, meaningful reform, South Carolina’s competitiveness in the global market could suffer,” Gossett said.

At the same time, S. Hunter Howard Jr., president and chief executive officer of the South Carolina Chamber of Commerce, has said his group’s members are growing increasingly concerned about the impact the dramatic increases in insurance rates and claim costs will have on their ability to maintain employment at current levels—or even stay in business.

Sanford established the Workers’ Compensation Task Force in July 2005 following a recommendation by the National Council on Compensation Insurance to increase advisory lost costs used by insurers and increase workers’ compensation rates by 32.9%.

Weeks later, the state’s director of the Second Injury Fund announced another 38% increase in year-to-year assessments, based on loss rates from the previous year.

In the wake of these two events, Sanford instructed the collective, consisting of business representatives, attorneys, insurance industry representatives and physicians, to conduct a top-to-bottom review of the state’s workers’ compensation system and make proposals to control spiraling premium increases. The body issued its recommendations in December.

By that time, the South Carolina Department of Insurance had rejected NCCI’s recommended premium hike, a decision the rating agency immediately appealed. The matter is to be heard by an administrative law judge in late April.

“The current trend in workers’ compensation premiums is simply not sustainable for South Carolina’s businesses, and especially our small businesses,” Sanford said in announcing his support for significant reform to the system. “I think workers’ compensation reform is key to continuing the progress we’ve made when it comes to creating better soil conditions for growing businesses and creating jobs.”

Past increases and the one now hanging in limbo present a serious concern in recruiting new business to the state. At one time, South Carolina ranked among the best in the nation in workers’ compensation insurance rates. However, the state no longer fares as well.

South Carolina currently ranks about average in rates, when compared with other states, but projections suggest that the ranking will continue to decline unless the state institutes cost curbing reform.

“In 2000, we had the second-lowest premiums in the nation,” Sanford said. “South Carolina’s workers’ compensation premiums increased 17.3 percent in 2003, compared to a national average increase of 6.65 percent. Last year they rose another 11.4 percent compared to an average decrease of 6 percent nationally.”

Of course, what is now going on in South Carolina isn’t unique. Similarly large efforts to reform workers’ compensation were made last year in Texas, Oklahoma, Illinois and Missouri.

But last’s year’s proposed increase in premiums in South Carolina was the largest of the 38 states in which NCCI is designated to provide recommendations on workers’ compensation rates.

“Frankly, it’s probably the largest proposed increase we’ve made in the last 10 years,” said Peter Burton, NCCI’s senior division executive for state relations.

According to NCCI, there are a lot of significant cost drivers in South Carolina. The first, and most pressing, Burton said, are medical costs that continue to spiral upward. Another factor the rating agency cited in its proposal is it’s taking longer to close a case.

“The longer it takes a case to close, the higher the associated costs,” Burton explained.

Lastly, Burton said, for some as-yet unexplained reason, attorney involvement in workplace injury cases is higher in South Carolina than in other states. “It’s supposed to be a rapid payment system, but when attorneys get involved, as you can imagine, there is less agreement and more disputes over the evidence in a case.”

In light of these factors, Burton said, South Carolina’s workers’ compensation system is significantly out of balance in terms of the money collected and the money that is being paid out to injured employees.

“Our proposed increase, as large as it was, was simply our recommendation on how best to bring the system back into balance,” he said.

But Knapp questions that assessment, and his group was at the forefront of pushing the Department of Insurance to review NCCI’s practices last year.

“First of all,” he said, “while health care costs have increased dramatically, they’ve only gone up 10% or so, according to statistics I’ve seen.

“Secondly, our organization believes that NCCI’s analysis of attorney involvement and case-closure rates was based on flawed data that didn’t take into account several positive developments, including the Workers’ Compensation Commission’s recent purchase of a new computer system that will speed up the handling of many cases.”

Although Knapp said he is not trying to make NCCI out to be the bad guy, he thinks it chose not to include important data from major insurers in its analysis and failed to explain why it didn’t count those numbers in its request for the premium increase.

Further, he said, there appeared to be no independent verification of data provided by carriers, which have a vested interest in the outcome of the rate approval process.

Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.

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