Seven years ago, Florida employers paid the highest workers' compensation premiums in the nation. Today, the state's workers' compensation premiums are among the lowest. The dramatic drop in premiums was primarily the result of legislation enacted in 2003 known as Senate Bill 50-A (Chapter 2003-412, Laws of Florida). The bill made changes to the workers' compensation system designed to reduce litigation, provide greater compliance and enforcement authority for the Department of Financial Services to combat fraud, revise certain indemnity benefits for injured workers, increase medical reimbursements for physicians and for surgical procedures, and increase availability and affordability of coverage.
Employers and carriers almost unanimously consider the 2003 reforms to have succeeded beyond their expectations. However, as they look to the future they are asking two big questions: Have all of the savings been squeezed out of SB 50-A? What opportunities or threats can we expect to see from the 2011 Legislature?
Impact of SB 50-A
Workers' compensation rates in Florida declined by 64.7 percent between Oct. 1, 2003, the date on which SB 50-A took effect, and July 1, 2010, the effective date of the most recent rate change. Rates declined with each annual rate filing. The only rate increase since 2003 came in April 2009, when a 6.4-percent increase was approved in response to a Florida Supreme Court decision that nullified a key attorney fee provision of SB 50-A.
Loss costs, the measure of all benefits paid, also declined dramatically. Florida's loss costs for the last year before SB 50-A took effect were 2.6 times higher than the state's 2010 loss costs. Total combined premium volume for carriers, group self-insureds, and individual self-insureds has also declined, from $5.5 billion in 2005 to an estimated $2.6 billion for 2009.
Seven years after the reforms took effect, rates may have bottomed out. On Aug. 18, 2010, the National Council on Compensation Insurance (NCCI) delivered its annual rate filing for 2011 to the Florida Office of Insurance Regulation (OIR). The filing proposed the first rate increase (other than the mid-year 2009 increase attributable to the attorney fee court decision) since enactment of the reforms.
The new filing proposes an overall rate level increase of 8.3 percent. By category, the smallest increase would be in the Office and Clerical area (7.3 percent), and the highest would be in the Miscellaneous area (10.8 percent). If the OIR approves the rates as filed, the cumulative rate change since October 2003 would still be a decrease of 61.8 percent.
According to Lori Lovgren, state relations executive for NCCI, the biggest reasons for the proposed rate increase are changes in Florida's claims experience and claims frequency. She said, "Florida's claims experience has deteriorated slightly in the last two years. The year-to-year improvements that Florida had been seeing in its loss experience since the 2003 reforms stopped after 2007. The other major factor is that the decline in claims frequency, which was very dramatic between 2003 and 2007, seems to have flattened. So, although claims trends may continue to decline, the pace will be slower."
If the savings from the 2003 workers' compensation reform legislation have finally run their course, the next question for employers and carriers is whether there are additional legislative actions on the horizon that could affect premiums or benefits.
Prescription Drug Costs
On the last day of the 2010 regular session of the Florida Legislature, business groups hailed the passage of HB 5603, which, according to one group, would have saved employers and carriers more than $100 million a year. On May 28, 2010, Gov. Charlie Crist vetoed the bill. Many observers expect the issue to come back when the next regular legislative session convenes on March 8, 2011.
HB 5603 affected the fee schedule for prescription drugs. The issue, according to proponents of the bill, was that when a physician or other health-care provider purchases drugs in bulk and repackages or relabels them, a drug identification number is eliminated and the drug is thereby taken off the fee schedule. In some cases, they argued, the repackaging results in price increases of 400 to 700 percent over the fee schedule.
Carriers and employers sought legislation that would apply the pharmaceutical fee schedule to repackaged or relabeled drugs in order to prevent health-care providers from charging more for the repackaged or relabeled drug than they could charge for the drug in its original packaging. The issue was never raised before a legislative committee or in floor debate, but the prohibition was added to budget-related bill during the budget negotiation process late in the session. Because it was part of a conference committee report, the provision could not be amended when it came up for a vote on April 30, the last day of the legislative session. The bill passed the House on a vote of 120-0 and passed the Senate on a vote of 38-0.
In his veto message, Gov. Crist said, "While limiting reimbursement rates for relabeled and repackaged prescription drugs sounds like a reasonable way to control costs, this is a complicated issue that was not fully vetted during the legislative process. I am concerned that implementing this bill without additional review could result in numerous unintended consequences that could ultimately adversely impact injured workers."
"Apportionment" Under Debate
Another issue that may come before the 2011 Legislature involves a First District Court of Appeal decision interpreting a provision of SB 50-A. Under the concept of "apportionment," when part or all of a compensable injury or disability is connected to a preexisting condition, compensation for the injury will be divided (or "apportioned") so that compensation for the preexisting injury is deducted from the amount for which the current employer or carrier is liable. The question in the case of Staffmark v. Merrell was whether apportionment would be allowed with respect to temporary indemnity benefits and medical benefits where both the current injury and the previous injury were work-related.
Carriers and employers understood the apportionment statute to apply to any injury or disability that existed before the current injury, without regard to whether the earlier injury or disability was work-related. In a decision issued on Aug. 12, 2010, the First District Court of Appeal held that apportionment applies only where the earlier injury was not work-related. The court based its decision on two 2007 cases that had held, in a different context, that the words "preexisting condition" did not include any employment-related injuries.
The Staffmark v. Merrell decision may ultimately result in rate increases if, as expected, it increases loss costs. Carriers might be expected to support legislation that would correct what they perceive as a misreading of SB 50-A and make it clear that the term "preexisting condition" was meant to include all prior injuries, whether work-related or not.
Efforts to Increase Fees or Benefits
It is no surprise that SB 50-A has been extremely popular with carriers and employers. It also should come as no surprise that other groups, including workers and the attorneys who represent them in workers' compensation cases, have not been as enthusiastic about the reforms.
In the years following enactment of the reforms, there have been numerous complaints that the cost savings were achieved by reducing injured workers' ability to gain full compensation for their injuries. While the Legislature has generally been sympathetic to these arguments in the case of law enforcement officers and other first responders, most of the provisions of SB 50-A have been maintained without change over the last seven years.
Legislators may be under pressure to revisit these issues in the 2011 session. In prior sessions, some legislators have raised the argument that because SB 50-A has produced far greater savings than its proponents originally anticipated, the time may have come to give some of those savings back in the form of higher benefits. However, in 2011 the most powerful argument for maintaining the reforms might have less to do with the basic fairness of the 2003 legislation than with the cost impact on employers in difficult economic times.
For carriers, the perennial question is whether they will support "reopening Chapter 440." The workers' compensation law delicately balances the interests of employers, carriers, and injured workers. In the view of many carriers and employers, it may be better to maintain the current balance than to create opportunities for others to upset that balance.
Thomas J. Maida is the managing partner of the Tallahassee office of Foley & Lardner LLP, and Leonard Schulte is public affairs director at Foley & Lardner LLP. Both are members of the firm's insurance industry team and public affairs practice. They may be reached at firstname.lastname@example.org or email@example.com.