Staying Alive

Taking a Stand

Many beleaguered entrepreneurs believe political action can help reform workers' compensation and decrease costs. "Workers' comp is killing me, so I've become a vocal thorn in [the government's] side," says Hamman. "I'm optimistic that this issue will create alliances of small businesses."

Entrepreneurs who have pushed for workers' comp reform have focused on a few key issues. Working with national trade organizations, or forming local small-business alliances, as Hauge has done by creating San Francisco Small Business Advocates, they have pushed for reform of workers' compensation litigation. One issue: In many states, workers' comp attorneys are paid by the hour, which encourages litigation over minor issues, according to the Insurance Information Institute. Entrepreneurs have advocated for states to restrict lawyers to a fixed rate for workers' comp litigation, set more objective means of assessing workplace injuries, and limit lawyers' ability to advertise so that more money is spent on injured parties.

What's more, entrepreneurs have pushed for reforms that introduce ways to control workers' comp medical costs, encourage competition in the insurance market and cut down on fraud. Some have suggested that states introduce caps on the number of visits workers' comp recipients can make to medical specialists, add co-pays and deductibles to workers' comp, let employers choose workers' comp physicians, and use other elements of managed care. Even in California, the situation has begun to improve. "California enacted workers' comp reform [in October 2003]," says Oxfeld. "It was the result of businesses in California uniting to pressure the legislature. Things can change. Legislators do listen."

What Caused the Crisis?
  • Rising health-care costs: According to Eric Oxfeld, president of UWC-Strategic Services on Unemployment & Workers' Compensation, costs rose because workers' comp insurance doesn't include solutions to expensive health care, such as co-pays and deductibles, which traditional medical insurance uses. And since workers' comp provides unlimited lifetime medical care, employees are tempted to claim all medical problems under workers' comp.
  • The aging work force: Older employees get hurt and sick on the job more often, increasing workers' comp costs. According to the National Academy of Social Insurance, injured workers aged 45 to 64 were bedridden for an average of five weeks, compared to about three and a half weeks for those aged 25 to 44.
  • Lack of competition: According to the Insurance Information Institute, 15 of the 39 insurers that failed in 2002 were in the workers' comp insurance business. "Now we put out 10 bids to cover us and only get two [responses]," says expert William S. Custer with Georgia State University in Atlanta. That's because so many insurers are out of business.
  • 9/11: September 11 decimated the balance sheets of reinsurers that provide insurance for insurance carriers. Reinsurers passed on costs to insurance companies, who passed them on to clients. September 11 also showed office workers could be at just as much risk as manual laborers. As a result, some insurance firms raised workers' comp premiums for professional businesses, making them equal to those paid by manufacturing firms, which traditionally paid more for workers' comp.

Joshua Kurlantzick is a writer in Washington, DC.

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This article was originally published in the January 2004 print edition of Entrepreneur with the headline: Staying Alive.

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