Speech, Friday, November 15, 1996

Worker's Compensation Institute

GETTING PEOPLE TO WORK TOGETHER THROUGH GOVERNMENT FOR THE COMMON GOOD IS A VERY DIFFICULT TASK.

BY DEFINITION, "FOR THE COMMON GOOD" MEANS THAT ALL OF US HAVE TO BE WILLING TO GIVE A LITTLE SO THAT THE WHOLE SOCIETY PROSPERS.

NO SOCIETY CAN GET BETTER UNLESS IT'S WILLING TO CHANGE.

CHANGE IS DIFFICULT.

CHANGE WILL ALWAYS ADVERSELY AFFECT SOME EVEN WHEN IT POSITIVELY AFFECTS THE MAJORITY.

LEADERS MUST LOOK AT THE BIG PICTURE AND THE LONG TERM IF THEY ARE TO LEAD TO A BETTER FUTURE.

THEY MUST BE WILLING TO DO WHAT'S BEST FOR THE WHOLE, EVEN WHEN IT ADVERSELY AFFECTS THEIR FRIENDS AND SUPPORTERS.

THAT IS THE POSITION I FIND MYSELF IN TODAY.

THIS AUDIENCE, AND OTHERS IN THIS FRATERNITY OF THE WORKERS' COMPENSATION BAR, ARE AMONG MY CLOSEST, PERSONAL FRIENDS AND POLITICAL SUPPORTERS.

I HAVE EVERY REASON TO BELIEVE THAT THE MAJORITY OF THE WORKERS' COMPENSATION BAR SUPPORTED ME IN MY RACE FOR GOVERNOR, PERHAPS AN OVERWHELMING MAJORITY.

SO, IT PAINS ME THAT MY ANALYSIS OF THE WORKERS' COMPENSATION PROGRAM IN KENTUCKY WILL LEAD ME TO PROPOSE CHANGES WHICH WILL ADVERSELY AFFECT MY FRIENDS AND SUPPORTERS.

BUT I AM ABSOLUTELY CONVINCED THAT WE MUST REDUCE THE COST OF THE KENTUCKY WORKERS' COMPENSATION PROGRAM IF WE ARE TO PROVIDE THE PEOPLE OF KENTUCKY WITH THE ECONOMIC OPPORTUNITY TO WHICH THEY ARE ENTITLED.

TO DO THIS, WE MUST MAKE THE SYSTEM LESS SUBJECTIVE, AND AS A RESULT LESS ADVERSARIAL.

WE MUST REMOVE AS MUCH OF THE GRAY AS POSSIBLE.

THE RESULT WILL BE MORE AND SPEEDIER BENEFITS FOR THE TRULY INJURED WORKER, LESS COST TO BUSINESS AND A MORE COMPETITIVE BUSINESS CLIMATE FOR KENTUCKY.

AS I TRAVELED ABOUT KENTUCKY CAMPAIGNING FOR GOVERNOR, I HEARD CONSTANT COMPLAINTS ABOUT WORKERS' COMPENSATION, FROM BUSINESSES AND WORKERS.

WORKERS COMPLAINED ABOUT INSURANCE COMPANIES ARBITRARILY DENYING THEM BENEFITS AND REFUSING TO PAY MEDICAL BILLS.

THEY COMPLAINED ABOUT THE SLOWNESS OF THE SYSTEM, ABOUT LOST CREDIT RATINGS, AND LOW DEATH BENEFITS.

THEY COMPLAINED ABOUT INSURANCE COMPANIES TRYING TO STARVE THEM OUT, AND THEY COMPLAINED ABOUT CO-WORKERS WHO HAD RECEIVED HUGE AWARDS THEY WEREN'T ENTITLED TO.

AND JUST ABOUT EVERY BUSINESS PERSON I TALKED WITH COMPLAINED ABOUT THE HIGH COSTS OF WORKERS' COMPENSATION, AND FOR MANY OF THEM, IT WAS THEIR NUMBER ONE COMPLAINT.

THEY TOLD ME IT MADE THEM LESS COMPETITIVE AND IT COST THEM SALES.

OF COURSE, YOU'D EXPECT BUSINESSES TO COMPLAIN ABOUT THE COST OF SUCH A MAJOR EXPENSE ITEM.

I DID WHEN I WAS IN THE COAL BUSINESS.

BUT I NEVER MADE THE EFFORT TO FIND OUT IF MY COMPENSATION COSTS WERE ACTUALLY HIGHER THAN MY COMPETITORS.

I SYMPATHIZED WITH BOTH GROUPS AND PROMISED TO LOOK AT THE PROBLEMS WHEN I BECAME GOVERNOR.

SO EARLY IN THE PAST SESSION OF THE LEGISLATURE, I CONVENED THE WORKERS' COMPENSATION ADVISORY COUNCIL AND PUT THE BURDEN SQUARELY ON BUSINESS TO PROVE THEIR CASE.

PROVE TO ME, I SAID, THAT KENTUCKY'S WORKER'S COMPENSATION COSTS ARE SUBSTANTIALLY HIGHER THAN COMPETING STATES.

I THEN TURNED TO THE LABOR MEMBERS AND ADMONISHED THEM TO LISTEN.

IF BUSINESS COULD, IN FACT, PROVE THAT OTHER STATES HAD A LESS EXPENSIVE SYSTEM, THEN LABOR NEEDED TO WORK WITH US TO FIND A FEASIBLE SYSTEM.

A SYSTEM THAT PROTECTS THE TRULY INJURED WORKER AND KEEPS OUR PRODUCTS COMPETITIVE IN THE WORLD MARKETPLACE.

I TOLD LABOR THAT WHEN WE LOSE MARKET SHARE, OR MORE CORRECTLY, WHEN WE DON'T GET NEW MARKETS BECAUSE OF HIGH WORKERS' COMP COSTS, IT'S LABOR THAT LOSES.

LABOR LOSES JOBS THAT WOULD HAVE BEEN CREATED BY INCREASED SALES.

LABOR LOSES WHEN BUSINESSES HAVE TO CUT COSTS TO KEEP THEIR PRODUCTS COMPETITIVE.

AND IT'S WAGES THAT ARE THE COSTS THAT GET CUT.

MANY PEOPLE IN LABOR UNDERSTAND THIS.

MANY LABOR LEADERS ACKNOWLEDGE WE HAVE A PROBLEM EVEN IF THEY DON'T AGREE WITH SOME OF THE PROPOSED SOLUTIONS.

YES, I KNOW THAT OUR ECONOMY IS STRONG AND GROWING.

I KNOW THAT WE ANNOUNCE NEW BUSINESSES COMING TO KENTUCKY EVERY WEEK.

THE FACT IS, KENTUCKY IS STILL AN ATTRACTIVE PLACE TO DO BUSINESS FOR MANY DIFFERENT KINDS OF INDUSTRY FOR MANY DIFFERENT REASONS.

WE HAVE A CENTRAL LOCATION, GOOD ARTERIAL TRANSPORTATION, LOW ENERGY COSTS, A LOW TAX BURDEN, AND A BUSINESS-FRIENDLY GOVERNMENT WITH INCENTIVE PROGRAMS TO HELP BUSINESSES ABSORB SOME OF THE COST OF THEIR INITIAL INVESTMENT TO CREATE JOBS FOR OUR PEOPLE.

AND WE HAVE A WORKFORCE IN KENTUCKY WITH A GOOD PRODUCTIVE, WORK ETHIC THAT IS BETTER THAN THE NATIONAL AVERAGE.

THOSE ARE THE POSITIVES WE PROMOTE TO BUSINESSES LOOKING TO LOCATE IN KENTUCKY. WE DON'T PROMOTE OUR WORKERS' COMPENSATION COSTS BUT OTHER STATES DO. THEY ADVERTISE THEIRS AND THEY ADVERTISE OURS.

THE FACT IS, THE GENERAL IMPRESSION IN THE BUSINESS WORLD, HERE IN KENTUCKY AND AROUND THE NATION, IS THAT THE WORKERS' COMPENSATION COSTS IN KENTUCKY ARE HIGH.

I KNOW THIS FOR A FACT BECAUSE I'VE HAD PEOPLE WHO ARE CONSIDERING KENTUCKY AS A NEW BUSINESS LOCATION TELL ME SO.

I'VE HAD THEM SHOW ME IN BLACK AND WHITE THAT OUR COMPENSATION COSTS ARE HIGHER THAN OTHER STATES THEY WERE CONSIDERING.

I'VE RESPONDED BY SHOWING THEM HOW OUR ENERGY COSTS AND TAX BURDEN ARE LOWER.

SOMETIMES THEY LOCATED IN KENTUCKY, BECAUSE OUR ADVANTAGES OVERSHADOWED OUR HIGH WORKERS' COMP COSTS. SOMETIMES THEY WENT ELSEWHERE.

YOU CAN NEVER BE SURE WHY YOU LOST A PROSPECT BUT I'M CONVINCED WE LOST SOME GOOD COMPANIES BECAUSE OF OUR HIGHER WORKER'S COMPENSATION COSTS.

SO WHEN I MET WITH THE WORKERS' COMPENSATION ADVISORY COUNCIL, I CHALLENGED THE BUSINESS MEMBERS TO SHOW ME, IN BLACK AND WHITE, BASED ON ACTUAL COST FIGURES FROM MULTI-STATE COMPANIES WHERE THERE WERE SUBSTANTIAL COST DIFFERENCES FOR WORKERS WHO WERE DOING ESSENTIALLY THE SAME JOB.

THE COAL INDUSTRY RESPONDED AND DEMONSTRATED TO MY SATISFACTION THAT THEY WERE HURTING BADLY. GENERAL INDUSTRY DID NOT.

I ATTEMPTED TO PROVIDE SOME RELIEF TO COAL IN THE LAST SESSION BUT MY PROPOSALS WERE REJECTED BY THE GENERAL ASSEMBLY.

MY IMPRESSION WAS THAT THE GENERAL ASSEMBLY WANTED MAJOR REFORM, NOT PIECEMEAL REPAIR.

THIS POINT WAS MADE EVEN MORE CLEAR TO ME WHEN THE CLEANUP MEASURE ON KEMI FAILED IN THE HOUSE BY A VOTE OF 29 TO 64.

I TOOK THIS AS A CLEAR SIGNAL THAT THE VAST MAJORITY OF THE HOUSE WANTED SUBSTANTIAL CHANGE.

SO AFTER THE SESSION, I ASKED THE ADVISORY COUNCIL TO CONDUCT HEARINGS TO GET TO THE FACTS.

I INSTRUCTED MY STAFF TO DO SOME RESEARCH TO MAKE SOME COMPARATIVE ANALYSIS.

THE RESULTS OF THAT WORK ARE CONTAINED IN THIS BOOK WHICH WE COMPLETED LAST WEEK. IF YOU HAVEN'T READ IT, GET A COPY.

I DON'T BELIEVE A REASONABLE PERSON CAN ANALYZE THIS MATERIAL AND NOT CONCLUDE THAT WORKERS' COMP IS A PROBLEM, A MAJOR PROBLEM, FOR MOST BUSINESSES AND A CRISIS FOR THE COAL INDUSTRY.

I'M CONVINCED THAT IF WE DON'T DO SOMETHING, AND DO IT NOW, TEN YEARS FROM NOW, OUR COAL INDUSTRY WILL ONLY BE A SHADOW OF WHAT IT IS TODAY AND WE'LL NEVER BE ABLE TO SOLVE THE ECONOMIC PROBLEMS OF EASTERN KENTUCKY.

IF WE DON'T MAKE FUNDAMENTAL, COMPREHENSIVE REFORM OF WORKERS' COMPENSATION, KENTUCKY'S OVERALL ECONOMY WON'T BE WHAT IT CAN BE AND WHAT IT MUST BE IF WE'RE GOING TO MOVE OUR STATE INTO THE MAINSTREAM OF AMERICAN ECONOMIC OPPORTUNITY.

I'VE MADE IT KNOWN FOR MANY MONTHS THAT I INTEND TO PROPOSE MAJOR WORKERS' COMPENSATION REFORM, DESIGNED TO MAKE THE SYSTEM MORE FAIR AND REDUCE COSTS.

THE GENERAL DIRECTION OF MY PROPOSAL HAS BEEN KNOWN FOR SOME TIME. I'VE RECEIVED HUNDREDS OF LETTERS ON THE SUBJECT.

WHAT I'VE NOT RECEIVED FROM LABOR, FROM THE WORKERS' COMPENSATION BAR, FROM ANYONE, IS ANOTHER OPTION WHICH WOULD ACHIEVE OUR OBJECTIVES.

I'M STILL OPEN TO SUGGESTIONS BUT TIME IS RUNNING SHORT. HERE'S WHY.

OUR SPECIAL FUND, WHICH HAD A LIABILITY OF $1.6 BILLION IN 1987 WHICH WAS ESSENTIALLY UNFUNDED, NOW HAS A LIABILITY OF $2.6 BILLION WITH ONLY $350 MILLION IN RESERVE.

THIS LIABILITY WAS SUPPOSED TO BE FULLY FUNDED BY 2018 AND YET TODAY THE EXPENSES ARE EXCEEDING THE INCOME, AND THE DEFICIT IS GROWING RAPIDLY.

ON JANUARY FIRST, THE ASSESSMENT ON GENERAL INDUSTRY IS GOING TO GO FROM 9 % TO 16.9 %.

THE ASSESSMENT ON COAL IS GOING TO GO FROM 24 % TO 47 %. WE HAVE A TRAIN WRECK GETTING READY TO HAPPEN, ESPECIALLY IN THE COAL INDUSTRY.

THE HEIGHT OF IRRESPONSIBILITY WOULD BE TO IGNORE IT. THE BASIC PROBLEM IS THAT UTILIZATION HAS GONE UP DRAMATICALLY.

THE NUMBER OF CLAIMS AWARDED IN KENTUCKY HAS MORE THAN DOUBLED SINCE 1988. THERE IS NO DATA TO INDICATE THAT THE KENTUCKY WORKPLACE HAS GOTTEN MORE DANGEROUS.

IN FACT, THE NUMBER OF GRAPHIC INJURIES HAS REMAINED ALMOST STATIC, WHILE THE NUMBER OF CLAIMS FILED FOR NON-OBJECTIVE SYMPTOMATIC INJURIES HAS ALMOST TRIPLED.

THE 1994 REFORMS REDUCED RETRAINING INCENTIVE BENEFITS OR RIB CLAIMS BUT SHOW NO SIGNS OF DECREASING OTHER TYPES OF CLAIMS.

DOZENS OF COMPANIES OPERATING IN KENTUCKY AND OTHER STATES PRESENTED DATA ABOUT COMPENSATION COSTS THEY ARE ACTUALLY EXPERIENCING.

ALMOST WITHOUT EXCEPTION, THESE DATA SHOW THAT COSTS IN KENTUCKY ARE HIGHER THAN IN MOST STATES WITH WHICH WE COMPETE.

THE COAL INDUSTRY SUBMITTED COMPELLING DATA ABOUT DRAMATIC COST DIFFERENCES WITH COMPETING STATES.

THE 1994 REFORM, ELIMINATING THE ASSIGNED RISK POOL, HAD A DRAMATIC EFFECT ON COAL, RAISING MANUAL RATES 89%.

THE DATA INDICATE THAT THIS HUGE INCREASE MAY ALREADY BE IMPACTING COAL PRODUCTION.

JUST THIS PAST WEEKEND A NEWSPAPER HEADLINE READ "KENTUCKY, ONCE NO.1 IN COAL, RANKS THIRD NOW." WHILE KENTUCKY PRODUCTION FELL 1.5%, WEST VIRGINIA'S ROSE 2.3%.

IN THE PAST FIVE YEARS, COAL PRODUCTION IN KENTUCKY FELL 13.5% AND EMPLOYMENT IS DOWN EVEN MORE.

IN 1995, WEST VIRGINIA TOOK THE HARD STEPS NECESSARY TO SAVE THEIR COAL INDUSTRY. THEIR COMPENSATION RATES ARE NOW ABOUT ONE-THIRD LOWER THAN OURS.

THE TIME HAS NOW COME FOR KENTUCKY TO TAKE EQUALLY DIFFICULT MEASURES TO ASSURE A STRONG ECONOMY INTO THE NEXT CENTURY.

MANY PEOPLE, INCLUDING ME, HOPED THAT H.B. 928 WOULD CURE THE PROBLEM.

THERE'S NO REASON TO BELIEVE IT HAS. OTHER THAN RIB CLAIMS, THERE HAS BEEN NO MEASURABLE IMPROVEMENT. THE TOTAL COST OF THE PROGRAM CONTINUES TO RISE.

THE MOST ACCURATE ESTIMATE OF THE TOTAL COST OF THE PROGRAM IN KENTUCKY THAT CAN BE MADE IS TO USE THE ASSESSMENT FEE PERCENTAGE AND THE RESULTANT ASSESSMENT COLLECTED TO DETERMINE THE PREMIUM ON WHICH THE ASSESSMENT WAS PAID.

USING THIS METHOD, THE ACTUAL COST OF THE ENTIRE WORKERS' COMPENSATION PROGRAM IN KENTUCKY IN FISCAL YEAR 1992 WAS CALCULATED TO BE $714 MILLION, BY 1996 THE COST HAD RISEN TO $1.1 BILLION.

THAT'S EQUAL TO 4 CORPORATE INCOME TAXES IN KENTUCKY.

THE INCREASE OF $400 MILLION IN JUST THE PAST 4 YEARS EQUALS ONE-AND-A-HALF ADDITIONAL CORPORATE INCOME TAXES IN KENTUCKY.

NO WONDER BUSINESSES ARE SCREAMING.

IN THE PAST 4 YEARS, THE TOTAL COST OF THE WORKERS' COMPENSATION SYSTEM IN KENTUCKY HAS RISEN 55%!.

IN JUST THE PAST 2 YEARS, SINCE THE PASSAGE OF H.B.928, THE COST HAS GONE UP 35%!! FROM FY 95 TO FY 96, THE COSTS WENT UP SLOWER, JUST $100,000,000. THAT'S 10% IN ONE YEAR.

THE BEST THAT CAN BE SAID ABOUT H.B. 928 IS THAT IT SLOWED THE GROWTH OF THE PROGRAM.

EVEN THOUGH THE FULL EFFECT OF H.B. 928 HAS NOT YET BEEN REFLECTED IN THE MARKETPLACE, I MUST STILL CONCLUDE THAT IT HAS NOT REDUCED COSTS LIKE ITS SUPPORTERS CLAIM.

YES, SOME BUSINESSES HAVE SEEN RATES GO DOWN, BUT THESE ARE THE LIGHT-DUTY INDUSTRIES WHERE COMPENSATION COSTS AREN'T A MAJOR FACTOR.

IN HEAVY INDUSTRY, ON WHICH OUR ECONOMY DEPENDS, WHERE COMPENSATION COSTS ARE A SIGNIFICANT COST ELEMENT, COSTS HAVE NOT GONE DOWN, AND MUCH DATA INDICATE IT'S GONE UP.

NOW IS THE TIME FOR ALL OF US TO FUNDAMENTALLY CHANGE OUR WORKER'S COMPENSATION PROGRAM.

I'VE FOLLOWED EVERY COMPENSATION "REFORM" EFFORT SINCE 1972 AND AFTER EACH ONE, COSTS WENT UP.

THE WORKERS' COMPENSATION BAR IN KENTUCKY IS GOOD. YOU REPRESENT YOUR PEOPLE WELL. I DON'T CRITICIZE YOU FOR THAT. YOUR OBLIGATION IS TO GET ALL YOU CAN FOR YOUR CLIENTS.

HOWEVER, AS GOVERNOR, I MUST EVALUATE THE EFFORT OF ALL THE CASES AND THEIR OVERALL IMPACT ON OUR ECONOMY AND ALL THE PEOPLE OF KENTUCKY. I MUST LOOK AT THE BIG PICTURE.

I HAVE NO DOUBT THAT OUR SYSTEM REWARDS SOME PEOPLE WHO HAVE NOT SUFFERED A SIGNIFICANT DEBILITATING INJURY ON THE JOB WHILE IT UNDER-COMPENSATES SOME PEOPLE WHOSE ABILITY TO WORK AND SUPPORT THEIR FAMILY HAS BEEN SERIOUSLY IMPAIRED.

IN ALL CASES, SETTLEMENTS TAKE TOO LONG AND WORKERS ARE PLACED IN DIRE FINANCIAL STRAITS WHILE WAITING FOR JUSTICE.

I INTEND TO PROPOSE TO THE GENERAL ASSEMBLY A REFORM THAT WILL ADDRESS THESE PROBLEMS AND OTHERS.

THE CENTERPIECE OF MY REFORM WILL BE AN AWARD BASED ON OBJECTIVE MEDICAL EVIDENCE AS DETERMINED BY THE PROFESSIONAL STAFF OF ONE OF OUR TWO MEDICAL SCHOOLS.

THE OCCUPATIONAL DISABILITY WILL BE DETERMINED BY OBJECTIVE CRITERIA WHICH WILL LEAVE VERY LITTLE DOUBT ABOUT WHAT IS DUE THE INJURED WORKER.

I WILL NOT REMOVE ATTORNEYS FROM ANY PART OF THE PROCESS AND FAIR FEES WILL BE ALLOWED. THERE JUST WON'T BE AS MUCH TO ARGUE ABOUT.

AN ADMINISTRATIVE PROCESS WILL DETERMINE AN AWARD WHICH CAN BE APPEALED IN MUCH THE SAME WAY AS TODAY. THE CURRENT OUT-OF-CONTROL SPECIAL FUND WILL BE CLOSED OUT AND ARRANGEMENTS MADE TO PAY OFF ITS EXISTING LIABILITY.

THE AWARDS ALREADY MADE TO WORKERS OF KENTUCKY WILL NOT BE REDUCED IN ANY WAY! IF INDUSTRY WANTS A NEW SPECIAL FUND, I'LL AGREE TO THAT BUT COAL MUST BE IN A SEPARATE FUND AND PAY ITS OWN WAY.

WE MUST HAVE BETTER CONTROL OVER ANY NEW SPECIAL FUNDS.

THE USE OF WORKERS' COMPENSATION AS A SUPPLEMENTAL RETIREMENT PROGRAM WILL BE REDUCED AND BLACK LUNG AWARDS WILL BE BASED ON MEASURABLE DISABILITY.

REOPENING OF CLAIMS WILL BE LIMITED TO 4 YEARS AND THE DEATH BENEFIT WILL BE RAISED FROM $5,000 TO $25,000.

WE WILL TIGHTEN UP CONTROLS ON SELF-INSUREDS TO PREVENT WHAT HAPPENED TO THE MINERS AT SOUTHEAST COAL AND THE KENTUCKY COAL PRODUCERS.

WE'LL PROPOSE MEASURES TO REDUCE FRAUD, ENSURE THE VIABILITY OF KEMI AND CHANGE THE WAY ADMINISTRATIVE LAW JUDGES ARE SELECTED.

OTHER CHANGES WILL BE DESIGNED TO MAKE THE LAW MORE CLEAR AND REFLECT TRUE LEGISLATIVE INTENT.

THIS WILL BE COMPREHENSIVE REFORM, NOT PIECEMEAL PATCHWORK. WE BELIEVE WE CAN MAKE AWARDS IN MOST CASES WITHIN 90 DAYS, GREATLY REDUCING THE FINANCIAL STRESS ON WORKERS WHO ARE OFF THE JOB.

WE BELIEVE WE CAN, IN TIME, REDUCE THE OVERALL ADMINISTRATIVE COSTS OF THE PROGRAM. AND WE BELIEVE WE CAN REDUCE COSTS TO EMPLOYERS WHILE INCREASING BENEFITS FOR TRULY INJURED WORKERS.

I DON'T EXPECT THE FIGHT IN THE GENERAL ASSEMBLY TO BE EASY BUT THEN NOTHING GOOD EVER COMES EASY OR WITHOUT A FIGHT.

I WILL PROPOSE TO THE PEOPLE THROUGH THEIR ELECTED REPRESENTATIVES WHAT I BELIEVE IS THE BEST FOR ALL KENTUCKIANS BECAUSE IT'S THE RIGHT THING TO DO.

THE GENERAL ASSEMBLY MUST MAKE THE FINAL DECISION BUT I WILL NOT BE A PARTY TO A FAULTY COMPROMISE TO APPEASE SPECIAL INTERESTS OR A PIECEMEAL PLAN THAT MAY DELUDE THE PEOPLE FOR A WHILE BUT IN THE END WON'T SOLVE THE PROBLEM.

I'M WILLING TO WORK WITH YOU AND LISTEN TO YOUR INPUT.

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