[ THE TROUBLES ]
Loggers Struggle with Workers’ Comp Insurance Rates
Congressional leaders are currently reexamining our country’s broken health
care system, which has meant a slew of news stories about different aspects
of the problem that might be analogized to the old Indian parable of the blind
men and the elephant.
What does this have to do with the woods? Well, across the Northeast, but
especially in Vermont, loggers are dealing with a similarly complex – and,
many would argue, broken – system relating to workers’ compensation
insurance premiums. Loggers of a certain age probably remember fighting
these same battles in the past, when a convergence of events sent rates
through the roof.
Here’s a crude drawing of what the elephant looks like. All states require
companies that have employees to purchase workers’ compensation policies.
The rates of these policies vary by profession (there’s a formula that is
recalculated every year based on the claims from the previous five years)
and, like all insurance markets, the pools benefit from economies of scale.
Unfortunately for logging companies, the job is considered by insurance
carriers to be the most dangerous in the country and there just are not many
loggers anymore – insured ones, anyway – so the rates are extraordinarily
high. How high? Sam Lincoln, a logger from Vermont who’s spearheading
efforts for reform, said that in 2016, companies that employed non-mechanized loggers (chainsaw and cable skidder) in Maine paid $22.00 per
$100.00 in payroll; in New Hampshire, it was $29.29 per $100.00; in New
York, it was $18.00 per $100.00; in Vermont, it was $54.06 per $100.00. The
numbers are about 40 percent lower for a mechanized logger in all states but
New York. He said that he generated the numbers using data on state labor
department websites and communication with state insurance carriers and
logging association representatives.
To put this problem and these numbers in practical terms, this means
that if we wanted to start a logging company and hire a worker to run a
cable skidder in Vermont, if we paid her $40,000 a year, we’d be paying an
additional $21,674 in workers’ comp insurance premiums. And that money
is due upfront – it’s not a pay-as-you-go system like a payroll tax. Lincoln
runs a mechanized operation, so his rates are “only” 20 percent, but he still
pays an extra eight dollars per hour, per employee, to cover workers’ comp
costs and payroll taxes. All of this might be workable if the wood industry
was high-profit and logging was lucrative, but that’s rarely the case. And
so couple the workers’ comp burden with bad to nonexistent low-grade
wood markets and marginal sawlog prices, big loan payments on expensive
equipment, and the high costs of living, and you can understand why the
logging workforce continues to mechanize and continues to shrink, and why
a nature magazine that advocates for the working landscape and responsibly
managed forests is concerned with workers’ comp rates.
So what can be done? There are already caps on rates that are intended
to protect companies from large and sudden changes in premiums – without
them, rates would be even higher – but with a 60-percent rise in premiums
over the last few years, the idea of “large and sudden” is clearly relative.
One of the reasons that premiums are lower in Maine, New Hampshire, and
New York is that those states have initiated self-insured trusts. According to
Lincoln, Vermont does not have enough loggers and log haulers purchasing
workers’ compensation to realistically start a self-insured trust. The logging
industry would need about $1.5 million in annual premiums to get this off
the ground. As of right now, it has only 105 policy-owners in the state; since
some companies own multiple policies, the number of individual businesses
contributing is likely much lower than that. Other action points include
implementing better logger-training efforts to make the industry safer,
promoting the use of professional contractors in the industry, attracting a
voluntary market carrier to Vermont to insure certified loggers and truckers,
and exploring the idea of a multi-state pool.
The deeper Lincoln gets into all this, the deeper the hole seems to get. “I
thought I was just going to go in and explain things to someone, and we’d
fix the problem,” said Lincoln. “Most days now, I feel like a dog chasing my
tail.” Like the national health insurance quagmire, it’s very hard to tease out
the line between state mandate and insurance company control. “I get a lot
of, ‘That makes perfect sense, but we don’t control that,’” said Lincoln.
Complicating things even more in Vermont is the high-profile campaign
that was conducted in recent years to crack down on businesses that treat
employees like independent contractors. (Employers must provide workers’
comp to employees, but not to independent contractors.) If a logging company
hires an independent trucker to haul wood from a jobsite or an occasional freelance feller to work on a big job, there’s a chance the company is required to
consider these contractors employees and pay workers’ comp following a legal
precedent set in 2008. “I have to fight with the insurance company every year
about this,” said Lincoln, pointing out the stark lines between his employees
who show up for work every morning at seven and the welder he calls to his
farm to fix a badly broken piece of equipment twice a year. Lincoln made it
clear that he has no problem with the idea of paying workers’ comp insurance
for his employees – in fact, he wants a strong labor department that roots out
legitimate misclassification and abuse, because people who are cheating the
system are making his premiums higher. He said he just needs a rational policy
that sees the difference between a worker and a freelancer, a policy that allows
for the Yankee ingenuity that’s at the heart of the rural economy.
An effort to clarify the rules regarding who’s a worker and who’s an
independent contractor will be taken up by the Legislature this session. And
in early January, Lincoln was appointed deputy commissioner of Forests,
Parks and Recreation by Vermont Governor Phil Scott. We’ll see if the
appointment gives his efforts for reform a boost.
For a glimpse at a future without reform, Vermonters can look to the
struggles that loggers have endured in Massachusetts, another state with
a logging workforce that’s too small to make a high-risk pool financially
tenable. Greg Cox, program director for the Massachusetts Forest Alliance,
worked on the issue in the 1990s and saw the effects first-hand.
“If the pool is big enough and claims are few, insurance works out OK,”
said Cox. “But small pools with high rates will force employers to either
eliminate employees or to organize to become exempt. Most logging operators
in Massachusetts are now family-owned enterprises without outside
employees, in part due to the workmen’s comp and independent contractor
rules.” This limits growth in an industry that’s already in sharp decline.
A logger and cable skidder at work in a woodlot.