8th Circuit

There's a specter haunting Missouri, the specter of workers' compensation. The government-run insurance program was originally intended to compensate employees who were injured in the course of their jobs. In recent years, however, the program has gone wildly out of control, according to many employers and the state's political leaders.

To hear Missouri State Senator John Loudon tell it, workers' compensation rulings in the state have become one horror story after another, with employees receiving benefits for injuries that have almost nothing to do with work. Benefits were awarded to "an overweight woman [with a bad knee], whose knee just happened to pop out at work; it could have happened anywhere," he says. Another woman got benefits when she fell and injured her ankle--outside the company's premises while on her lunch break.

Such rulings have forced Missouri employers to pay higher premiums for workers' compensation insurance and made it harder for them to compete with companies in other states.

Loudon blames those responsible for interpreting the workers' compensation law.

"The courts and the [labor and industrial relations] commission have been packed with liberal-leaning judges and commissioners who believe they should award benefits," Loudon says. "They have interpreted the law liberally and expanded the types of injuries that are covered by workers compensation."

That, however, may soon change. Loudon has introduced a bill--SB1--that would rein in judges and commissioners and dramatically rewrite Missouri's workers compensation law.

Loudon has plenty of allies in his attack on the current workers' compensation system. The state's new governor, Matt Blunt, has announced that one of his top three priorities is to alter the workers' compensation law. The state's legislative leaders are pushing hard for change, too.

But while many expect the current law to be altered, some experts fear that the proposed changes won't help Missouri businesses.

"The legislative leadership and the new governor agree on the need for workers' compensation reform, but after they understand what their changes would do to the business community, it is unclear if they will still want to pursue this," warns Randy McConnell, a spokesperson for the Missouri Association of Trial Attorneys.

Peaks And Valleys

Not everyone agrees that Missouri really has a problem with workers' compensation.

According to a December 2004 study by Oregon's Department of Consumer and Business Services, Missouri's workers compensation insurance rates were only a little above the national median. The state ranked 22nd out of 51 jurisdictions (including the District of Columbia), with Missouri employers paying $2.67 in insurance per $100 of payroll. California garnered the number one spot, with employers paying $6.08 per $100 in payroll. Businesses in North Dakota paid the least, $1.06 per $100 of payroll.

Moreover, insurance rates in the state have been rising at far less than the rate of inflation. Since the state's market for workers' compensation insurance was deregulated in 1994, rates have risen just 4 percent, while inflation has jumped 25 percent. And for 2005, both Missouri's regulators and the National Council on Compensation Insurance (NCCI) have recommended that the state's insurers reduce their rates.

So why do many businesses in Missouri say there's a problem? McConnell points to history: "From 1994 to 2001, the price of workers' compensation insurance declined 25 percent. Then medical inflation caught up and insurance rates rose 4.7 percent in 2001, 9.2 percent in 2002, 14.7 percent in 2003, and 2.1 percent in 2004.

"Employers see rate increases from the low in 2001, so they want to reduce eligibility for workers' compensation," McConnell says.

As for Missouri's rates being close to the national median, Loudon dismisses that as irrelevant, because insurance rates in Missouri are higher than in most of the neighboring states, and this is hurting Missouri's employers, who are at a disadvantage in competing with businesses in these states. "Manufacturing in Missouri has taken a beating," he says, and the state's trucking industry "is really crying for relief."

Loudon's bill attempts to provide that relief by tightening many requirements in the state's workers' compensation law and by making it harder for injured workers to collect benefits. For instance, the bill would limit the definition for "injuries arising out of employment." Compensation would be allowed only if a work-related accident was the "prevailing" factor in causing the injury, rather than a "substantial" factor, as the statute currently requires.

The bill also would tighten the definition of a compensable "accident," limiting it to a "traumatic strain or unusual strain identifiable by time and place of occurrence and ... caused by a specific event during a single work shift."

In addition, SB1 would restrict the ability of judges and state bureaucrats to expansively interpret the workers' compensation statute. It would require that all provisions of the statute be construed "impartially," instead of "liberally," as the statute currently mandates.

The bill's backers expect such changes to prevent significant numbers of injured workers from receiving benefits, and thus lead to a reduction in employers' insurance premiums.

Unintended Consequences

NCCI, a non-profit organization that provides insurance data to underwriters, has found the bill's potential effects hard to determine.

"Overall system costs may decrease slightly," said an NCCI analysis, adding, "the overall magnitude of the savings of this bill is unclear given the large amount of uncertainty in the number of cases affected and how the language will be interpreted/adjudicated."

Moreover, throwing injured employees out of the workers' compensation system may not help employers' bottom lines, because such workers would then be free to bring negligence actions against their employers. Businesses would be forced to pay litigation costs to defend themselves, and should they lose in court, they would face much higher liabilities than under the workers' compensation scheme.

According to the NCCI analysis, providing benefits only when work is the "prevailing" cause of an injury, instead of a "substantial" cause might be counterproductive: "This may have the effect of increasing system costs due to increased litigation on these denied claims."

Loudon, however, remains unmoved. "The current workers' compensation situation has put employers' backs up against the wall," he says. "They would rather take their chances under a new system."

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Steven Seidenberg

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