BusinessTN

Prior to 2004, Tennessee workers’ compensation laws left much to be desired. The rapidly rising costs were not only putting a huge financial strain on the state’s existing businesses, but were discouraging new ones from relocating to the state, as well.

Problems regarding the ambiguity of the workers’ comp laws and the inconsistency in which they were enforced abounded, leading to frustration on the part of both employers and employees. At the time, Tennessee ranked seventh highest in the country for worker compensation costs, with Tennessee businesses paying on average 19% more than businesses in surrounding states, according to a state report compiled by the National Federation of Independent Businesses. During his first term in office, Gov. Phil Bredesen spearheaded reform of the state’s broken workers’ compensation system. The goal was to save Tennessee employers more than $30 million in premium costs. Though exact figures are just now being calculated, Sue Ann Head, administrator of the Workers’ Compensation Division in the Tennessee Department of Labor and Workforce Development, says it’s clear that Tennessee’s “trending down of costs” has had an impact. “We’re seeing that more businesses are relocating to Tennessee,” Head says. “And those that are already here are able to expand, thanks to the savings provided by the reform.” (The National Council on Compensation Insurance, or NCCI, the authorized rate-making entity for all workers’ compensation carriers in the state of Tennessee, has analyzed the changes in Tennessee’s workers’ comp laws and suggested that there would be a 6.3% rate reduction across the state, according to the figures printed in the state’s Economic Develop- ment Guide.)

Make no mistake, the situation is not a panacea. Critics say Bredesen’s reform stopped short of what many in Tennessee’s business community had hoped for—namely the creation of an independent board or commission of experts to stand between an appeal and the courts. It also failed to eliminate the multiplier option allowing judges to increase the size of an award on appeal, an ingredient seldom found in other workers’ comp systems nationally.

Despite those perceived shortcomings, there are clear (though lesser known) benefits to the reform as passed for small business that are in addition to the potential for decreased insurance rates. The medical impairment rating, which represents the percentage of impairment as it relates to the whole body and defines the amount of disability that an employee can get as a result of an injury, while not eliminated, was reduced from 2.5 to 1.5 for accidents that happened after July 1, 2004, a move that translates into significant savings on behalf of employers.

The laws have also become more specific.

“Before, if you had an injury to the body as a whole—the neck, back, shoulder or torso—then there was a cap on the amount of benefits that you could receive,” says Mark Travis, a Cookeville attorney with Wimberly Lawson Seale Wright & Daves who specializes in workers’ compensation. “But extremity injuries didn’t have those caps—now they do.”

The increased specificity has eliminated much of the ambiguity in evaluating claims. Now, a person with an injury on one side of the state is more likely to be awarded the same thing as someone with the same injury on the opposite end. It has also decreased the total amount of workers’ comp-related lawsuits that are filed in the courts.

“When you provide some certainty, as these reforms did, it does not do you much good to sue because you know exactly what you’re going to get,” Travis says. “The reforms have taken much of the legal expense out of the mix because there’s no incentive for lawyers to take those cases and try to argue them in court.” Another component of the reform that has resulted in a decline of lawsuits is the addition of mandatory mediation. “Before, you could be injured on Monday and file the lawsuit on Tuesday,” explains Bart Quinn, a workers’ comp lawyer with Chatta- nooga’s Chambliss, Bahner & Stophel.

However, the reformed laws now mandate that employees and employers engage in a state-sponsored benefit review process before attempting to litigate.

“It’s a quick and informal way of resolving the case before getting lawyers involved,” Travis says. The mediation process had been in the books for years, but was not made mandatory until the 2004 reform.

Now that elements of the reform are being enforced, workers’ comp-related lawsuits appear to be on the decline. “We’ve seen about a 68% increase in the use of the benefit review system since 2004,” Head says. (Penalties for failure to pay have increased from 6% of the amount of benefits to a whopping 25%, a fact that likely encourages employers to be forthcoming with money owed.) Business groups working on Capitol Hill are now focused on holding firm to the reforms made in the workers’ compensation arena and looking for opportunities to enhance those gains in coming legislative sessions. Meanwhile, a new issue related to workers’ compensation costs might be looming on the horizon for small businesses, an issue that has its seeds in America’s ongoing war on terror.

Employers big and small are already experiencing, or are likely to experience, challenges associated with the return of thousands of soldiers and contractors from service in Iraq and Afghanistan. There are insurance implications—specifically workers’ compensation issues—that could stem from the return of veterans to the workplace. About 30% of the military personnel that has been deployed in Iraq and Afghanistan are citizen soldiers, or National Guardsmen and reservists. Soldiers returning from those theaters have experienced considerable physical, emotional and psychological hardships that could well manifest themselves in the workplace. Robert Hartwig is the vice president and chief economist for the Insurance Information Institute.

He recently published an article entitled “When Johnny Comes Marching Home Again” in the 2006 Issues Report published by NCCI. Hartwig says while the vast majority of military personnel will re-enter civilian life and employment seamlessly, others will not. Describing it as a “huge” issue, Hartwig adds, “Reintegration of the physically and psychologically injured will likely present unexpected challenges to a generation of employers with no experience in dealing with such large numbers of returning veterans.” 4feedback: byrd@businesstn.com