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Workers compensation costs fell 18 percent in 1997, completing a four-year string of declines that removed New York from the nation's highest-cost states, an influential report says.

The drop made New York the 12th-costliest state of 44 studied, down from eighth place the year before, according to the report by Actuarial & Technical Solutions Inc. of Ronkonkoma. The study leaves out six states that cover workplace injuries with a government fund.

As recently as 1994, New York's insurance system for on-the-job injuries was the nation's second-most expensive, raising howls from business groups. Gov. Pataki has made cutting the system's cost a priority.

Now, state business lobbyists seek further cuts, citing the report's finding that costs are still 20 percent higher than average.

But analysts said last week that further improvement will be more difficult. And labor advocates said the program has reduced its protection for injured workers, who lack the insurance industry's lobbying clout.

"They're trying to lay the foundation for further reductions, and it's going to come right out of workers' hides," said Dominick J. Tuminaro, an attorney and newsletter editor for the Center for Worker Injury Policy Inc. in New York.

The workers compensation system, designed to channel workplace injuries away from the courts, affects thousands of workers every year. In 1997, the system received reports of 415,000 injuries that resulted in lost work time.

Of those, 183,000 were severe enough to open a compensation case, according to the Workers Compensation Board in Albany. Claims are paid by a state-administered fund or by insurance companies, which sell coverage under state-set rates.

No one disputes that premiums paid by New York employers are down. The average cost for comp coverage was $1.88 per $100 in payroll in October 1997, vs. $3.48 in 1993, a 46 percent decrease, according to the Compensation Insurance Rating Board in New York.

The rating board computes injury costs and sets rates, but doesn't attempt to compare New York's costs with other states. Differences in the job base and the administration of the system make comparison difficult, said Martin Heagen, vice president and actuary of the rating board. States with many dangerous jobs, like mining or meat processing, spend more on workplace injuries.

That makes the Actuarial Solutions study an influential resource for comparing New York's competitiveness. The study -- which only addresses the manufacturing sector -- factors out differences in job types to compare states on an even basis.

The result shows that New York's workers comp costs still aren't competitive, according to the Public Policy Institute, research arm of the Business Council of New York Inc. Despite the improvement, the state's cost remains 20 percent higher than the national average.

"We're convinced we still have a way to go on workers comp," said Robert Ward, spokesman for the Business Council.

The system remains one of employers' major gripes about the state's high business costs, he said. Since premiums for comp insurance are based on an employer's payroll, high costs are a strong deterrent to adding jobs.

As election season debate warms, the business group is pushing two major changes in comp benefits:

A seven-year cap on "permanent disability" benefits, forcing workers to retrain for another job.

Standardized medical guidelines for determining the degree of disability, instead of case-by-case rulings.

But critics of the report say state-to-state differences make the actuarial results suspect. And the report doesn't address a critical question, they say: Whether high compensation costs are the result of benefits paid to workers, or profits taken by insurers.

"Rates are as high as they are because of the high percentage that comes off the top for the insurance companies," said Joan Malone, coordinator of the Coalition for Economic Justice.

Under the Pataki administration, the system has shifted in favor of insurance companies at the expense of injured people of small means, critics said. Injured workers say they are routinely pressured by delaying tactics to settle for a fraction of their claim, including waiving medical treatment, advocates say.

"I think the government ought to get medical and administrative costs under control, instead of continually coming after the worker," said Keith Williams, chairman of the United Steel Workers regional committee on workers compensation.

As industry has become more competitive it is also more dangerous, causing the Steelworkers' death rate to rise since 1992, he said. Yet employers push for injured workers to return on light duty instead of recuperating.

And while other states link benefits to average wages, New York hasn't raised its maximum weekly benefit of $400 since 1992, Tuminaro said. As a result, even workers who win their case replace only a fraction of their lost wages.

New York hasn't been alone in cutting comp costs. Throughout the country, states have reduced their bill through managed care and advances in workplace safety, said Amy D. Hicks, a consulting actuary at Actuarial Solutions.

While New York cut costs 18 percent last year, nationwide averages fell 12 percent, the report said. The trend toward falling rates nationwide makes it more difficult for the state to cut its costs relative to others.

And within another two years, states can expect to see their costs bottom out, as the easy cuts from managed care are exhausted, Ms. Hicks said.

"You just reach a point where there's no more that can be done," she said.

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