Mr. BEARD. I welcome everyone here and look forward to hearing from the various witnesses that will testify today.

Our first witness is Donald C. Brain, president, Independent Insurance Agents of America.

To my left, we have John Erlenborn, the ranking minority member of this subcommittee.

Mr. Brain, you may proceed. Do you have a prepared statement? [The prepared statement of Donald C. Brain follows:]

PREPARED STAatement of DONALD C. BRAIN, PRESIDENT, THE INDEPENDENT
INSURANCE AGENTS OF AMERICA, INC.

My name is Donald C. Brain. I am an independent insurance agent from Kansas City, Missouri and I appear before you today in my capacity as President of the Independent Insurance Agents of America, Inc. IIAA is a national association representing 126,000 licensed independent property-casualty agents from each state in the Union, who sell and service the major portion of this nation's workers' compensation insurance coverage. I speak in opposition to the adoption of H.R. 5482, the National Workers' Compensation Standards Act.

The effect of the standards included in H.R. 5482 on the states would not merely represent federal intrusion, but would in effect be a wholesale takeover of what are now state determined workers' compensation systems. The federal government's intent to usurp the states' determination of the workers' compensation system best suited for them is evidenced by provisions for: Mandated benefit levels which would have a severe inflationary impact; authority in the Departments of Labor and H.E.W. to promulgate binding regulations on the states as to what constitutes occupational disease and federal gathering of statistics which could easily become the predicate for federal control of workers' compensation rate programs.

Present state workers' compensation programs are continually being improved to provide a more efficient and equitable distribution of benefits and costs. The various states in recent years have made enormous strides in this area and progress continues. In 1972 the National Commission on State Workmens' Compensation Laws evaluated state workers' compensation systems and made a number of recommendations, nineteen of which were deemed "essential". The States have implemented most of these "essential" recommendations. For example in 1972 only 31 states had compulsory workers' compensation coverage. while today all but three states provide such coverage.' In 1972, 41 states allowed full coverage for occupational disease, today virtually all states allow such coverage.' In 1972, only 36 states were providing full medical benefits for occupational diseases without arbitrary limits on duration or amount, while today full benefits are provided by law in all but one state. Another "essential" recommendation called for temporary disability benefits equal to at least 66% percent of the workers' gross weekly wage subject to the state maximum weekly benefit. Every state but one uses this standard (the exception uses a range of 60-95 percent depending on the number of dependents). These are just a few of the many important improvements that states have made in recent years. Indeed, such significant developments as Florida's wage loss experiment point to the innovations states can contribute under present arrangements.

Now the crucial problem being addressed by the states involves how the administrative processes of each state's system can be improved so that each claimant gets the level of benefits to which he is entitled and at the same time fraudulent practices are removed. The improvements needed in this area vary from state to state and cannot efficiently be remedied by uniform federal prescriptions. Improving the efficiency of each state's administration of workers'

1 Statement of the National Association of Insurance Commissioners, submitted to the Senate Labor Subcommittee. Hearings on the Proposed National Workers' Compensation Standards Act of 1979, S. 420, March 28, 1979, p. 3.

2 Ibid.

• Ibid.

• Ibid.

compensation is a key to retaining a viable and affordable system. It is important to keep in mind that the costs of the workers' compensation system have risen by 74 percent in the last five years as the result of improving the benefits paid by the system."

This bill would essentially and irresponsibly serve to increase the cost of administering the workers' compensation systems. A state worker who is dissatisfied with, or fails to be awarded, compensation could then appeal the state's determination to the Benefits Review Board established under Section 21 of the Longshoremen's and Harbor Workers' Compensation Act (a law, as this Subcommittee is well aware, fraught with excess and abuse). If the Benefits Review Board finds in the claimant's favor. the worker will receive supplemental benefits plus costs and attorney's fees from the employer. It would be easy to find grounds to use this procedure under the guise of providing new evidence, which would undermine the current system and result in protracted and costly litigation.

Given our present economic situation, a particularly detrimental contribution of H.R. 5482 would be in its inflationary impact upon our nation. The bill establishes the minimum income benefits for permanent disablement or death to be 66% percent of the worker's average weekly wage (alternately, states may elect a minimum benefit equal to 80 percent of the worker's spendable after tax wages). This provision represents a substantial increase in benefits nationwide, since the maximum benefit provided in most states is 66% percent of the workers' average weekly wage.

In addition, there are expensive upward adjustments to this 66% percent minimum. Benefits would be specifically indexed to the rate of inflation, making it harder to price the product because of the difficulty of accurately predicting inflation rates several years in advance. The legislation would project a much higher maximum on weekly benefits than found in most states; specifically 200 percent of the state's average weekly wage. The cost of workers' compensation with these minimums would exceed present costs by 500-1,000 percent. Further, there is a real danger that benefit levels would become so high under this legislation so as to discourage employees from returning to work.

These minimum standards will inexorably lead to unresolvable tensions between the states, whose interest is to keep the premiums for workers' compensation insurance affordable, and the federal government's interest that high minimum benefit levels be maintained. The result of this tension will be severe market restrictions when insurers cannot be assured the rate necessary to fund the increased benefit levels. The problems that would be faced if H.R. 5482 were enacted are already felt by industries covered by the United States Longshoremen and Harbor Workers' Act which also has been imposed upon all members in Washington, D.C. Not only has the cost of workers' compensation premiums to some District of Columbia employers risen over 600 percent within the last decade,' but the voluntary market has shrunk significantly and the residual market has risen dramatically. As this Subcommittee is aware, the D.C. government is currently moving to reverse this trend by revising this law. The Independent Insurance Agents of America strongly believes that the workers' compensation system, as regulated and administered by the states, has served the public, industry and the worker to an optimum degree. The state systems have been steadily improving, and the states have affirmed their intention to continue in this direction. We do not believe a federal workers' compensation scheme, or a federally regulated system, would serve the varying state constituencies as effectively as a system that can specifically respond to local needs. Therefore, we urge the continuation of state regulation and control, and the defeat of the kind of federal involvement contemplated by H.R. 5482. Thank you.

Can Tinkering. Federal Style, Make Workers' Compensation Work Better?" The Journal of American Insurance, fall-winter, 1978, p. 6. • Statement of the United States Chamber of Commerce in testimony by William Moshofsky before the Senate Labor Committee on S. 420 on March 20, 1979. It should be noted that S. 420 is a similar but less expensive version of H.R. 5482.

"Can Tinkering, Federal Style. Make Workers' Compensation Work Better?" The Journal of American Insurance. Fall-Winter, 1978, p. 6.

Statement by Representative Erlenborn on the New District of Columbia Workers' Compensation Act, U.S. Congressional Record. February 7, 1980, p. H746.

STATEMENT OF DONALD C. BRAIN, PRESIDENT, INDEPENDENT INSURANCE AGENTS OF AMERICA, ACCOMPANIED BY DONALD W. PERIN, JR., ACTING EXECUTIVE VICE PRESIDENT

Mr. BRAIN. Congressman, we do. I believe you have copies of it. I may make a few remarks that are not contained in the statement, if I may.

Mr. BEARD. You can be assured that your prepared statement will be incorporated in the record.

Mr. BRAIN. Thank you, sir.

Mr. BEARD. You may proceed, sir.

Mr. BRAIN. My name is Donald C. Brain. I am an independent insurance agent from Kansas City, Mo., and I appear before you today in my capacity as president of the Independent Insurance Agents of America. IIAA is a national association representing 126,000 licensed independent property-casualty agents from each State in the Union who sell and service the major portion of the Nation's workman's compensation insurance coverage. I speak in opposition to the adoption of H.R. 5482, the National Workers' Compensation Standards Act, from a point of view that has been developed by our relationship, dealing with small businessmen throughout the United States.

The effect of the standards included in H.R. 5482 on the States would not merely represent Federal intrusion, but would in effect be a wholesale takeover of what are now State-determined workman's compensation systems. The Federal Government's intent to usurp the States' determination of the workers' compensation system best suited for them is evidenced by the provisions for: One, mandated benefit levels which would have a severe inflationary impact; authority in the Departments of Labor and HEW to promulgate binding regulations on the States as to what constitutes occupational disease, and the Federal gathering of statistics which could easily become the predicate for Federal control of workman's compensation rate programs.

The present State workers' compensation programs are continually being improved to provide a more efficient and equitable distribution of benefits and costs. The various States in recent years have made enormous strides in this area and progress continues. In 1972, the National Commission on State Workmen's Compensation laws evaluated State workers' compensation systems and made a number of recommendations, 19 of which were deemed essential. The States have implemented most of these essential recommendations. For example, in 1972 only 31 States had compulsory workman's compensation coverage. while today all but 3 States provide such coverage.

In 1972, 41 States allowed full coverage for occupational disease, today, virtually all States allow such coverage.

In 1972, only 36 States were providing full medical benefits for occupational diseases without arbitrary limits on duration or amount, while today full benefits are provided by law in all but 1 State.

Another essential recommendation called for temporary disability benefits equal to at least 662% percent of the worker's gross weekly wage. Every State-excepting one-uses the 662% percent standard. and that exception uses a range of 60 to 95 percent, depending on the number of dependents.

These are just a few of the important improvements that States have made in recent years. Indeed, such significant developments as Florida's wage loss experiment point to the innovations that States can contribute under present arangements where there can be State innovation and experimentation.

Now, the crucial problem being addressed by the States involves how the administrative processes of each State's system can be improved, so that each claimant gets the level of benefits to which he is entitled and at the same time fraudulent practices are removed. The improvements needed in this area vary from State to State and cannot efficiently be remedied by uniform Federal prescriptions. Improving the efficiency of each State's administration of worker's compensation is a key to retaining a viable and affordable system. It is important to keep in mind that the costs of the workers' compensation system have risen by 74 percent in the last 5 years as a result of the benefits that are being paid by the system, as mandated by law. This bill would essentially and irresponsibly serve to increase the cost of administering the workers' compensation systems. A State worker who is dissatisfied with, or fails to be awarded compensation, could then appeal the State's determination to the Benefits Review Board established under section 21 of the Longshoremen's and Harbor Workers' Compensation Act, a law, as this subcommittee is well aware, fraught with excess and abuse. If the Benefits Review Board finds in the claimant's favor, the worker will receive supplemental benefits plus costs and attorney's fees from the employer. It would be easy to find grounds to use this procedure under the guise of providing new evidence, which would undermine the current system and result in protracted and costly litigation.

Given our present economic situation, a particularly detrimental contribution of H.R. 5482 would be in its inflationary impact upon our Nation. The bill establishes the minimum income benefits for permanent disability or death to be 662% percent of the worker's average weekly wage-alternately, a State may elect a minimum benefit equal to 80 percent of the worker's spendable after-tax wages. This provision represents a substantial increase in benefits nationwide since the maximum benefit provided in most States currently is 662% percent of the worker's average weekly wage.

In addition, there are expensive upward adjustments to this 66% percent minimum. Benefits would be specifically indexed to the rate of inflation, and this would make it very difficult, if not impossible, to price the product because of the difficulty of accurately predicting inflation rates several years in advance. Benefits under this program have what we call a "longtail." The legislation would project a much higher maximum on weekly benefits than found in most States; specifically 200 percent of the State's average weekly wage. The cost of workers' compensation with these minimums would exceed the present costs, as near as we can statistically determine, by between 500 and 1,000 percent.

Further, there is a real danger that benefit levels will become so high under this program as to discourage employees from returning to work.

These minimum standards will inexorably lead to unresolvable tensions between the States, whose interest is to keep the premiums for

workers' compensation insurance affordable, and to attract industry; the Federal Government's interest that high minimum benefit levels be maintained. As a result of this tension, there will be severe market restrictions when insurers cannot be assured the rate necessary to fund the increased benefit levels. The problems that would be faced if H.R. 5482 were enacted, are already being felt by industries today covered by the United States Longshoremen and Harbor Workers' Act which has been imposed on all the employers in Washington, D.C. Not only has the cost of workers' compensation premiums to some District of Columbia employers risen over 600 percent in the last decade, but the voluntary market has shrunk significantly and the residual market has risen dramatically. As this subcommittee is aware because of the problems of industry remaining in this district, meeting competitive price standards, it is now a program of the District of Columbia government to reverse this trend by asking for revisions in this law.

The Independent Insurance Agents of America strongly believe that the workers' compensation system, as regulated and administered by the States, has served the public, the industry and the worker to an optimum degree. The State systems have been steadily improving, and the States have affirmed their intentions to continue in this direction. We do not believe that a Federal workers' compensation scheme, or a federally regulated system, would serve the varying constituencies as effectively as a system that can specifically respond to local needs. I again refer you to such things as Florida's wage loss program.

Because of these things, we urge the continuation of State regulation and control and the defeat of the kind of Federal involvement contemplated by H.R. 5482. We thank you for this opportunity to make this statement.

Mr. BEARD. Thank you very much, Mr. Brain, for your testimony. Let me say that in the hearings we have had in this Congress on this issue, we have had people from the Brown Lung Association, people from textile mills in the southern part of the country, people concerned about problems they have with asbestos, and people from the jewelry industry in my home State of Rhode Island.

I have served on the various subcommittees and the full Committee on Education and Labor now going on 6 years. I have served on the Daniels Committee that had this jurisdiction. I can recall, 5 years or so ago, they had hearings in Hartford, Conn., and we talked at that time with people from the business community who said that the States could on their own work toward the 19 points and bring up their workman's compensation standards. Some States have moved forward. However, there are a lot of States who have preferred to leave things. the way they are and not worry about workers' benefits. It seems to me that, on the whole, the States have not made the necessary changes. The question is now whether we can get a bill imposing national standards through this particular Congress with the economy the way it is. I do not think the impact federally would be that difficult. It probably would be more within the States, which would have to hire additional people to enforce additional standards.

But down the line, whether it is this Congress or the next, something has to be done to get the States moving in a forceful way toward