Associated Industries of Massachusetts How Much Social Insurance Should the Government Provide? Workers Compensation and Unemployment Insurance Richard C. Lord, President and CEO Associated Industries of Massachusetts

2 Workers Compensation (WC) and Unemployment Insurance (UI)  Both provide a partial wage replacement to employees who lose their job through no fault of their own: –WC – Workplace injury –UI – Laid off, able and available to work, actively looking for employment  Both programs established by federal law but states play an important role in establishing eligibility, benefits and administration.  AIM strongly supports both programs, but policy decisions can have significant impact.

3  Massachusetts celebrating 100 th anniversary  Removes ability of employee to file tort claim against the employer –Costly to both parties –WC created to be exclusive remedy  Paid for by employers –Private insurance or self insured –Rates based on employer experience Workers Compensation

4  Employee Benefits –Lost wages –Vocational rehabilitation –Related medical care –Death benefits to spouse and dependents  Major reform in 1985 and 1991

5  1985 Reform Intent –Address administrative funding problems (Division of Industrial Accidents funded by employers) –Eliminate huge backlog of cases – months if not years of delay for injured workers

6 But the pendulum swung too far… –Increased weekly benefits 20% received more in benefits than after tax earnings prior to injury –Produced huge increase in claims and claimants From 29,000 in 1987 to 40,000 in 1991 –Increased lump sum settlements Promise of one-time “pot of gold” versus return to work

7 –Most insurers stopped writing in Massachusetts –In 1991, 65% of all premium and 90% of employers in high risk pool –Costs for employers increased 100% from 1988 to 1991

8 The pendulum swung back in 1991…  1991 Reform –Reduced duration and amount of benefits in line with other states –DIA impartial medical exam eliminates “doctor shopping” –DIA creates medical treatment protocols –Claims reduced from 41,000 in 1991 to 12,500 today –Assigned Risk Pool is only 11.2% of market –Most commercial insurers return to Massachusetts –Costs to employers have been reduced by 60% –Employers and insurers actively assist employee in return to work

9  Massachusetts celebrating 75 th anniversary  Paid for by employers – average $714 per employee or $1.6B  Employee benefit – 50% of weekly wage to a maximum of $653 per week Unemployment Insurance

10 Massachusetts offers 30 weeks of benefits –All other states offer 26 or fewer (several offer 20 now) Employees qualify for benefits after 15 weeks of work or $3500 in earnings –Most other states require 20 weeks Dependency allowance - $25 per child –Only 14 states have a dependent benefit Health insurance for low income unemployed –Massachusetts is the only state with such a program

11  Massachusetts is the 3 rd most expensive state, 44% above national average –Only Michigan and Oregon are more expensive  Higher costs impact employers ability to hire –CNBC competiveness study – Massachusetts ranked 41 st in cost of doing business

12  Greater use of experience rating –Employers that use system pay more  Reduce benefits from 30 to 26 weeks ($50- 90M)  Eliminate dependency allowance  Increase work eligibility requirement from 15 to 20 weeks ($30M)  Merge UI health program into Commonwealth Care ($144M ) Possible UI Reforms

13  Federal law has extended benefits to 99 weeks  Federal UI taxes pay for benefits, but –Massachusetts still pays for health insurance program, and –Health assessment on employers has tripled  Impact on employee job search?  Employment prospects for the long-term unemployed? Federal Extended UI Benefits

14  Workers Compensation: Massachusetts has a system that works for both employers and employees at a reasonable cost. MA ranked #1 system by “Risk & Insurance”  Unemployment Insurance: Massachusetts has an expensive system, partially driven by generous benefits, and needs reform. General Observations