National: High State Work Comp Premiums Can Lead Big Companies, Including Toyota and Mazda, Elsewhere

Sarasota, FL (WorkersCompensation.com) - Workers’ compensation insurance premiums and protocols are sharing the blame for the state of Illinois losing out on two — and possibly three — massive economic development opportunities, reflecting concerns in other states regarding how issues related to workers’ comp programs can hinder attraction of new business and industry.

In recent months, Illinois lost opportunities to host Foxconn, an LCD panel manufacturer whose 13,000 jobs eventually went to Wisconsin, and a joint venture between Toyota and Mazda that reportedly could now bring 4,000 jobs to the South.

Also, with Illinois among the large number of states competing for a second Amazon headquarters and its 50,000 jobs, there is the potential for a third loss in the economic development arena in Illinois amid heavy competition.

The Chicago Tribune used a recent editorial to bemoan the state’s poor results in luring economic development. In part, the Tribune’s editorial board opined, “The rap on Illinois: It has the lowest credit rating of any state; high taxes; onerous regulations on businesses; and prohibitive workers’ compensation rules.”

Other states, too, are worried that workers’ compensation issues are hobbling their efforts to attract new businesses and industries.

Addressing the issue more pointedly than the Chicago Tribune editorial, an Oct. 10 commentary by two business advocates in the Albany, NY-based Times Union newspaper lays the blame for a sluggish economy in upstate New York, in part, on the high cost of workers’ compensation insurance. 

Under the headline “Workers’ comp holds upstate back,” the authors — Mike Durant, state director of the National Federation of Independent Business/New York, and Greg Biryla, executive director of Unshackle Upstate, described on its website as a bipartisan effort to make state government more accountable to taxpayers — allege that “prohibitively high workers' compensation insurance costs, which ranked the third highest in the nation as of 2016,” are part of the “reasons for upstate's continued economic malaise.” 

Durant and Biryla call workers’ compensation costs in New York “needlessly exorbitant” and contend that workers’ compensation costs hit nonprofit organizations and local governments as well as businesses. The pair contend that “local governments dealing with workers’ compensation costs, pass high premium costs down to taxpayers, exacerbating New York's notoriously burdensome state and local tax burden.”

Looking forward, the two business advocates praise workers’ compensation reform efforts undertaken this year by Gov. Mario Cuomo and the state legislature. Those reforms, enacted with the state budget, set up the development of a drug formulary for workers’ compensation, and also set up updates to medical impairment guidelines to make them reflective of the capabilities of modern medicine.

The two men write that “if properly implemented,” the reforms “will reduce costs for businesses and taxpayers while enhancing protections for seriously injured workers.” The commentary goes on to note that “modernizing the state's $10 billion Workers' Compensation system will also ease a significant cost burden for employers, not-for-profits, municipalities and ultimately, taxpayers — something desperately needed across upstate New York.”

On the other side of the country in California, Jerry Azevedo, spokesman for the Workers’ Compensation Action Network — described on its website as “a statewide, broad-based grassroots coalition of employer and insurer trade groups, businesses, nonprofit organizations and public entities working together to ensure predictability and stability in California's workers' compensation system, reduce costs for employers and improve services to injured workers” —said workers’ comp premiums and policies can affect business and industrial siting decisions, although the extent of that influence may not be readily discernible.

Azevedo told WorkersCompensation.com that workers’ comp costs are part of “the broader category of labor costs” such as the cost of living in a specific locale, that help drive business and industrial siting decisions.

Azevedo said the current efforts by states and communities across the country to attract a second Amazon headquarters — in which he characterized those efforts as “a gold rush” — are a case in point.

“You can’t reliably say today” how workers’ comp issues might factor into Amazon’s decision on a second headquarters outside its Seattle base, Azevedo said. But he added that the company’s search “could be a test” of the influence of workers’ comp costs for businesses looking for new locations.

Those costs have been a continuing issue in the state of California for some time, Azevedo said, explaining that the state has routinely seen roughly decade-long cycles where workers’ comp costs will be under control and then drift out of control as policies and procedures change over time.

A “breaking point” for the state came in the early 2000s, Azevedo said, when workers’ comp premiums rose to $6.50 per $100 of company payroll, driving policy renewal premiums up by as much as 300 percent.

In that same time frame, one company’s siting decision — a decision to leave California — left no doubt that workers’ compensation costs were an element in the move.

“Buck Knives left for Idaho, and specifically noted workers’ comp” as a reason for its decision, Azevedo said. The hunting-knife manufacturer laid off 200 California employees as it went to Idaho.

State lawmakers instituted some workers’ comp reforms in 2004, but costs eventually worked their way back up as treatment guidelines were changed, Azevedo noted.

Five years ago, in another attempt to get California out of its cyclically problematic workers’ comp issues, state lawmakers passed Senate Bill 863, a wide-ranging effort to help control costs. Both labor representatives and employers were involved in crafting the legislation.

As just one example of the compromises in the law, the bill increased permanent disability payments, but curbed disability benefits for sleep disorders and sexual dysfunction, both of which had been responsible for earlier out-of-control workers’ comp costs, Azevedo said.

The legislation also established controls over medical liens, litigation expenses and other costs, according to Azevedo.

Overall with Senate Bill 863, “we bent the cost curve on medical care,” Azevedo said. 

In the process, legislators and Gov. Jerry Brown, along with the labor representatives and employers who had a hand in crafting the legislation, addressed a primary concern for employers, both those in the state and those looking to relocate to California, Azevedo said.

“What drives employers crazy is unpredictability,” he explained. Today, while workers’ compensation in California is “still an expensive system,” it is “vastly more stable,” with premiums dropping 16 percent over the last two years. 

“We’ve flattened out the wild swings,” he said.

While the legislative action undertaken in California — and the current frustration in New York and Illinois — illustrate governmental focus on the potential for workers’ comp issues to derail economic development opportunities, those issues may not be as critical as governments suppose.

John H. Boyd, principal in The Boyd Company, a leading corporate site selection consulting firm, said workers’ compensation issues are part of what it considers on behalf of clients looking for new business locations, but they likely won’t control a siting decision. 

“We factor it in as a cost of doing business,” he said.

Boyd did acknowledge that high workers’ compensation costs can, when added to other cost considerations, take a potential site out of consideration.

There are, however, some steps that businesses can take to address any concerns they may have about workers’ comp issues in a location under consideration, including contracting with a third party to handle those issues, he added.

Overall, he said, workers’ comp considerations are “not a leading driver in most of our projects.” 

“It’s rarely a deal-killer,” Boyd said.

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