Workers Compensation Policy Institute

September 10, 2012

Workers’ Comp Assessments: New York’s tax remains the highest in the nation New York municipalities say workers’ comp costs have gone up despite 2007 reforms ALBANY, NY, September 10, 2012 –A surcharge added to workers’ compensation costs for all New York State employers remain the nation’s highest. It is nearly five times the average of the same surcharge imposed in other states, according to the annual study conducted by the Workers’ Compensation Policy Institute.

New York’s 18.8 percent surcharge is more than double the 8.3 percent tax in Minnesota – the state with the second highest surcharge. These surcharges, called assessments, are essentially a tax on workers’ compensation premiums and are used by state governments to fund the system. Thirty-two states impose this premium tax with an average assessment of 3.8 percent.

The 2007 Workers’ Compensation Reform Act attempted to reduce the burden on employers; however, in the last three years, New York State has increased this tax by 10.4 percent, increased it by 27.5 percent, and decreased it by 6.9 percent, respectively. While assessments in New York decreased by 6.9 percent in 2012, assessments nationwide were actually down by an average of 9.5 percent.

“This tax continues to burden all employers – and municipal employers feel this mandate intensely as they continue to struggle to provide essential services and contain taxes,” said Paul Jahn, the Institute’s Executive Director. “This pressure was recently intensified by the 2 percent property tax cap.”

Local governments expected some relief from the burden of assessments through the Workers’ Compensation Reform Act of 2007. Prior to passing the reform act of 2007, assessments stood at 18.6 percent of premium. Since then, New Yorkers were charged 15.5 percent, 13.4 percent, 14.2 percent, 18.1 percent and 20.2 percent. This year’s 18.8 percent assessment is the second highest New York has seen since undertaking reform.

The Institute’s new analysis shows that assessments are continuing to be a larger part of increasing costs, and employers pay nearly 50 percent more of their compensation dollars in assessments to fund the system than they did four years ago.

Just one part of the assessment burden, a 9.6 percent tax on premium, is assessed to support just one fund, the Second Injury Fund. This fund was created decades ago with the original purpose of encouraging employers to hire disabled veterans returning from World War II.

This fund accounts for half of New York’s high assessment charges. The fund is intended to mitigate workers’ compensation benefits if an injured employee had a permanent impairment prior to filing a compensation claim. Although the 2007 reform law closed this fund to new claims after July 1, 2007, claims will continue to enter the system for the next few years because it only kicks in after 260 weeks of paid benefits. The assessment burden also reflects the following factors:

• A 4.9 percent tax on premium is used to fund the Reopened Claims Fund. This fund is activated when a claim reopens at least seven years after the work-related accident and three years since the last payment or award of lost wages. More claims will become eligible for the Reopened Claims Fund now that permanent partial disability claims have been capped. Once capped benefits are paid in full and these reopened claims become eligible, the cost of this assessment or tax will increase.
• A 3.1 percent tax of premium is the cost that employers pay for the state to administer the Workers’ Compensation Board. New York’s administrative costs exceed the total cost of assessments in all northeastern states except Connecticut.

The report noted that New York State’s municipalities’ ability to raise revenues is constrained by the two percent cap on property taxes. No such constraint exists on unfunded mandates and high employment costs such as retirement contributions, health insurance, and county Medicaid mandates. At the same time, workers’ compensation benefits regularly increase and actuarial experts are concerned that the New York system remains significantly underfunded. Ultimately, employers will absorb the full cost of the system. This hidden tax on workers’ compensation premiums, which has grown rapidly since 2008, complicates an already difficult situation and cannot be sustained over the long term, the report concluded. The slight relief from this burden offered this year was not enough to change the fact that New York continues to have the highest administrative costs in the country.

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