Workers' Compensation Insurance in New Mexico
The Challenges and the Work to Overcome Them

By Carla J. Sonntag

Skyrocketing medical costs and the inability to set appropriate rates to cover losses lead the list of challenges for the workers' compensation market in New Mexico.

Both the regular market and the assigned risk pools are affected.

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According to Roger Buelow, vice president of Mountain States Mutual Casualty Company, the situation has evolved to this point over the past 10 plus years.

"We're seeing the courts chip away at the work done in the 1990's on the Workers' Compensation Act," Buelow said. "The law, as it was written, was objective and predictive. It kept costs in control due to certainty within the law."

Buelow said the courts may be changing the intent of the law through interpretation as they decide cases before it. Several opinions given since the Act was passed have led to unpredictable outcomes, which, in turn, have increased costs. A good example of this can be seen in Grublenik vs. Four-Four, Inc.

Grublenik, the injured employee, informed his employer that he was allowed to return to light-duty work, but he had been offered work with another employer. Grublenik began work for the new employer on the same day as the return to work notification. Grublenik then sued Four-Four, Inc. under the Workers' Compensation Act for benefits. The 1990 Workers' Compensation Act provides that compensation benefits under the Workers' Compensation Act [52-1-25.1 NMSA 1978] shall accordingly be reduced, if necessary, to account for any wages and employer-financed disability benefits a worker receives after the time of injury.

Grublenik won the lawsuit on appeal and was paid full temporary total disability benefits, even though the combined compensation of the new salary and benefits was greater than he had earned prior to his injury. The New Mexico Court of Appeals stated, ". . . an express purpose of the Act is the rehiring of injured workers" [52-1-50 NMSA 1978]." Four-Four, Inc. had not offered Grublenik his job back. "It is this uncertainty that leads to higher costs to cover the contingencies," Buelow said.

Every licensed contractor in New Mexico must carry workers' compensation insurance, regardless of whether or not they have employees. But some companies have difficulty finding coverage from standard insurance carriers due to various reasons such as high frequency or severity of losses, no prior coverage or work in a high-risk industry. These companies can find coverage from the assigned risk pool, although they may pay a hefty premium for it.

John Franchini, vice president of Government Affairs of New Mexico Mutual Casualty Company (NMMCC) said the assigned risk pool further challenges the workers' compensation industry. "Even though there is a legislative directive that the assigned risk pool must pay their own way, rates are not high enough to do this," he said. "All companies writing workers' compensation in New Mexico have to pay for losses (claims costs) in the pool."

NMMCC is the largest workers' compensation underwriter in New Mexico writing 35 percent of the workers' compensation business, excluding business written by self-insured groups.

"The biggest challenge for the industry is finding cost effective and stable coverage for employers and employees," Franchini said, "The present payment formula for hospital costs administered by the Workers' Compensation Administration (WCA) is based on charges billed. Because it is subjective, it provides no way to predict costs in order to set rates. But, the WCA is working on it."

Exactly how is the WCA "working on it"? Through a cooperative layered approach that brings the business community together with labor. At the first level is the Business and Labor Coalition. This voluntary group works on many of these tough issues including recommendations for legislative amendments to make the Act less subjective to court interpretation. The coalition works in an unofficial advisory capacity to the Workers' Compensation Advisory Council, which is the official group that reports to the governor and proposes legislation. Thom Turbett, CEO of the Independent Insurance Agents of New Mexico, is currently serving as the chairman of the Business and Labor Coalition. "The coalition adds an interesting dynamic to the situation. It's a constant battle to tweak the (workers' compensation) system in order to provide a good balance between costs and benefits," he said.

The Business and Labor Coalition may be informal, but written bylaws and dues paying members govern it. The chairmanship passes between business and labor on an annual basis with the chairman first serving for one year as assistant chair.

"In the early 1990's, costs were under control and the group worked to bring benefits up. Today, the opposite is true as the coalition works to find solutions to help control the increasing costs," Turbett said.

So while New Mexico may struggle with ever-increasing costs, as a state it is fortunate to have adequate capacity and an assigned risk pool to cover businesses that might otherwise be uninsurable. Rates are considered high by most employers, but not as high as insurance companies believe they should be to cover claims costs. New Mexico continues to work towards addressing the tough issues and making the workers' compensation program better.