Workers' Comp:

What happens when legislature enacts an insurance reform bill that results in rates being cut by 50 percent over a five-year period? Lawmakers leave the line of insurance alone. Such was the case in the 2008 legislative session when lawmakers all but ignored workers' compensation except for a few minor changes that will likely go unnoticed by employers and carriers.

The success of the 2003 reforms have become so ingrained in the market that they almost seem surreal, given the dramatic fall in rates and the hyper competitive posture adopted by carriers. Employers' rates have been cut by more than half, including the 18.4 percent decrease -- the statewide average -- that took effect this year, which translated to a collective savings of $700 million.

National Council on Compensation Insurance (NCCI) Representative Lori Lovgren noted that few workers' compensation bills crossed her desk, which was to be expected, given the current market environment. NCCI generally has the task of estimating the financial impact of any significant legislative changes. "Given the downward changes in rates, it makes sense that they would leave it alone," she said.

Tom Stahl, head of FUBA Workers' Comp, says that workers' compensation has become virtually untouchable as a legislative topic. "It has become one of those third rails in politics where lawmakers go out of their way to not even talk about it," he said.

That's not to say there is a lack of concern, especially as the market anxiously awaits a Florida Supreme Court ruling that could strike down the current limits on claimant attorneys' fees. If the court rules against the employer/carrier position, then no one is under any illusion that lawmakers would follow the same roadmap as the previous reform bill, in light of the transformation in the political environment headed by Governor Charlie Crist. That said, many in the industry were glad the government decided to leave workers' comp alone, at least for this year.

"Certainly we are happy that the legislature chose not to rock the boat and continue to let the 2003 reforms drive down costs," said William Stander, assistant vice president and regional manager of the Property Casualty Insurers Association of America. "However, a Supreme Court decision to strike down attorneys' fees could cause real problems."

Sink on Trust Fund

Chief Financial Officer Alex Sink scored a victory when lawmakers failed to go along Crist's budgetary proposal that would have appropriated $129.5 million from the Workers' Compensation Administrative Trust Fund (WCATF).

Like most government trust funds, the WCATF is set up so that the regulatory cost of administering a program is paid for by the entities specifically affected by the law. It is based on a percentage of carriers' net written premiums, and it is passed through to employers as part of the annual rate filing. As of January, the trust fund had a balance of $271 million, which reflects a significant surplus set aside in case the state was required to reimburse carriers for potential overpayments to the fund dating back to the 1990s. The courts have since ruled in the state's favor, making the money available to pay the annual cost of operating the state's system.

During a tight budget year, that money was more than attractive to the governor. Sink warned, however, that if lawmakers sign off on Crist's original plan it would just be a matter of time before employers would have to pay up. "A trust fund sweep of this magnitude would require the state to raise workers' compensation taxes on Florida businesses as early as January 2009."

The trust fund's total obligations are projected to equal $93 million annually, of which the operations at the Division of Workers' Compensation (DWC) accounts for $25 million. The current assessment rate is .25 percent, which is projected to raise $23 million. The trust fund's remaining $70 million liability will be withdrawn from the fund's current surplus. Department of Financial Services' spokesperson Kevin Cate said the department had identified only $7 million that lawmakers swept out of the fund.

DWC and AHCA

Lawmakers did unanimously approve DWC's legislative proposal, enacting HB 5045. It is sponsored by the House Jobs and Entrepreneurship Council, which codifies into law an interagency agreement that brought the Agency for Health Care Administration's Workers' Compensation Medical Services Unit under the division's umbrella.

The change reverses a move made by the legislature in the late 1990s to transfer the medical services unit from the DWC to the AHCA. At the time, the rationale for the transfer was that it would streamline the regulatory process necessitated by a mandate that all workers' comp medical services must be delivered through a managed care network. Lawmakers later lifted the mandated making managed care a voluntary system for providing medical services. With the lifting of the mandate, regulators maintained it created an unnecessary split in the regulatory and rulemaking process.

For example, AHCA is responsible for auditing health care providers to determine whether they are overutilizing services or improperly billing for services. AHCA also has the statutory authority to issue fines in cases in which providers are engaged in improper business practices. At the same time, the division is charged with monitoring insurers to ensure that they are properly paying medical bills. Likewise, the DWC has the ability to levy fines against insurers for noncompliance with the law. As a result, the medical services unit moved back to the DWC under an interagency agreement. Division officials said codifying the change would eliminate any conflicts in the rulemaking process while enhancing the enforcement of various statutes and regulations.

SIF Dividends

One workers' compensation insurance issue that did seize lawmakers' attention addressed the distribution of policyholder dividends by the state's group self-insurance funds. There are currently four self-insurance funds in the state, including the Florida Retail SIF, the Florida Rural Electric Fund, FUBA Workers' Comp -- which sponsors the Florida Citrus, Business, and Industries SIF -- and the Florida Roofers, Sheetmetal Workers, and Air Conditioning SIF. Under current law, the trustees of a group self-insurance fund can decide to pay a dividend to policyholders if the fund's surplus exceeds the fund's financial obligations. The fund must, however, first obtain permission from the Office of Insurance Regulation.

Under the bill, the four existing self-insurance funds would not have to secure regulatory approval prior to distributing the dividends; however, they would need to inform OIR within 10 days of doing so. In addition, the distribution of the dividends could not undermine a fund's solvency or exceed the total amount of dividends declared "unpaid" under the fund's most recently filed financial statement. Funds created after June 1 would require prior approval from the OIR for a period of seven years before they too could distribute dividends without advance regulatory approval.

According to Stahl, the bill is intended to prevent a potential tax problem with the Internal Revenue Service. He said the fund takes a tax deduction for all income because it is either used to pay claims or it is returned to policyholders. Under the current regulatory scheme, however, the IRS might consider those dividends as income, thereby creating a tax liability. "Since the law requires prior approval before we pay dividends, the IRS could potentially not allow us to take the deduction," he said.

PEO Legislation Hits a Dead End

There was some movement in the legislature to consider a variety of changes to ensure that professional employment organizations and their client companies were meeting the terms of the state's workers' compensation compliance law, and that workers were informed of their coverage status. Among other things, PEOs would have been required to supply written notice to workers clarifying whether the PEO or the client company was responsible for providing workers' comp coverage. PEOs would also have been required to inform a leased employee by mail when a PEO/client agreement ends. Furthermore, PEOs would have to notify leased employees of the termination of their workers' comp coverage if they either terminate or lay off the employees. Finally, a PEO must offer the client company the records necessary for calculating an experience modification factor. A general consensus that the requirements would've been almost impossible to implement, much less monitor for compliance spelled the end of the legislation.