Feeling the Burn

WASTE COMPANY OWNERS ARE FEELING the pinch from skyrocketing premiums for health insurance. But medical and hospital coverage is not their only insurance headache.

Viewed on a nationwide basis, premiums for workers' compensation have soared by approximately 50 percent during the past few years. Waste companies in California have seen even bigger jumps. Perhaps that's why Gov. Arnold Schwarzenegger says he may resort to a ballot initiative to cap medical costs and benefits if lawmakers fail to sizably trim the state's budget.

Business leagues and trade associations, not to mention small-business lobbyists, have actively sought these kinds of changes, reflecting the anger and frustration that affects firms of all sizes in all sectors of the economy. Smaller haulers can find it more difficult to compete where they cannot pass through sharply rising workers' compensation costs.

As if the situation weren't critical enough, some businesses have taken matters into their own hands. More precisely, they have decided to wash their hands of the problem by ignoring the legal mandate to carry such insurance.

With the notable exception of Texas, all states have laws on the books requiring employers to carry workers' compensation coverage. Although the mechanics of filing and pursuing a claim vary from state to state, the system is fundamentally uniform throughout the country.

An employee cannot sue his employer for a job-related injury. Instead, an injured employee must file a claim with a state workers' agency, which determines on a roughly no-fault basis, the amount of payment the employee will receive for injury, disability and lost earnings. For the most part, the state systems are funded by contributions or premiums paid by employers based on the size of a company's payroll and the nature and number of claims that its employees have filed.

A disturbing trend among many smaller businesses is to save money either by not providing legally required coverage to their employees or by underreporting the size of their workforce, regulators and experts say.

Evading workers' comp laws is “endemic, especially in contractor sectors of the economy,” according to Robert P. Hartwig of the Insurance Information Institute, New York. “It's a multibillion-dollar problem in the aggregate across the country,” he told The New York Times.

The state programs protect an injured employee who works for a company that has cheated on its coverage. Claims are still processed and awards are made. But costs are passed along to the complying companies in the form of no-fault premium increases.

The owner of a 28-employee waste firm in the Southeast reports that during the past five years his injury rates have dropped. However, his workers' comp premiums have doubled and this cost stands in the way of winning new contracts. “Unless a business or a local government requires proof of insurance coverage — and in [many] places they don't — then I can lose a job to a competitor with a lower bid that's based on less overhead,” he complained.

Although a few states — Florida, New York and Ohio, for example — are trying to play catch-up with underinsured and uninsured employers, the prospects for stemming the trend any time soon are painfully slim.