In election results that perhaps only Gov. Rick Scott and his most ardent supporters could have imagined in the summer of 2010, Florida’s voters chose the Naples Republican over his Democrat rival Alex Sink. The choice seemed to reflect voters’ embrace of the central theme of Scott’s campaign — “Let’s Get to Work” — as well as the anti-Obama sentiment that influenced the outcome of many races throughout the country. Here in Florida, Republican success was not confined to the gubernatorial election and the U.S. Senate race, where Marco Rubio trounced Independent Charlie Crist and Democrat Kendrick Meek, but also in the three state cabinet races and across Florida in state House and Senate elections.
Not surprisingly, the Republican sweep raised hopes in the insurance industry that the 2010 election will mean industry-friendly regulatory and legislative environments. On the regulatory side, Scott wasted no time making his views on government regulation clear. Speaking before the Florida Council of 100 just nine days after the election, Scott was quoted saying, “Regulations grow and spread like weeds — if we aren’t actively working to cut them back, they choke off every productive effort.” He reportedly went on to call regulation “an endemic weakness in government.”
Just how the new governor’s general views on government regulation will translate into policy on insurance regulation remain to be seen. What is clear is that Scott wants to see further dramatic reductions in workers’ compensation rates. The St. Petersburg Times blogged that, in his speech before the Florida Council of 100, Scott renewed his campaign pledge to reduce workers’ compensation costs by 35 percent. A rate reduction of that magnitude would likely require significant reductions in benefits paid to injured workers.
While the governor’s mission may be clear, what is less clear is the 2011 Florida Legislature’s appetite for benefit reforms.
Changes From 2003’s SB 50-A
Seven years ago, Florida employers paid the highest workers’ compensation premiums in the nation. Today, Florida’s workers’ compensation premiums are among the lowest in the country. The dramatic drop in premiums was the result of legislation enacted in 2003 known as SB 50-A, which 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 the availability and affordability of coverage.
Between Oct. 1, 2003, the date on which SB 50-A took effect, and Dec. 31, 2010, the day prior to the effective date of the most recent rate change, overall Florida workers’ compensation rates declined by 64.7 percent. 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 also fell, 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. Just three months ago, Insurance Commissioner Kevin McCarty approved an overall rate level increase of 7.8 percent, the first rate increase (other than a midyear 2009 increase attributable to a Supreme Court attorney’s fee decision) since enactment of the 2003 reforms. The National Council on Compensation Insurance (NCCI) had requested an overall change of 8.3 percent.
The main reasons cited for the rate increase were changes in Florida’s claims experience and claims frequency. The year-to-year improvements that Florida had been seeing in its loss experience since the 2003 reforms stopped after 2007, and the decline in claims frequency, which was very dramatic between 2003 and 2007, seems to have flattened. According to NCCI, although claims trends may continue to decline, the pace is expected to be slower.
In short, the savings from the 2003 workers’ compensation reform legislation may have finally run their course. If that is the case, it stands to reason the most likely way Scott and the Florida Legislature will be able produce dramatically lower workers’ compensation rates will be to enact further benefit reforms.
Prescription Drug Costs
While the Legislature’s collective appetite for benefit reforms is, for now, uncertain, lawmakers are expected to revisit the issue of prescription drug repackaging. On the last day of the 2010 regular session of the Florida Legislature, business groups celebrated the passage of HB 5603, which, according to one group, would have saved employers and carriers more than $100 million per year. On May 28, then-Gov. Charlie Crist vetoed the bill. Many observers expect the issue to come back when the next regular legislative session convenes on March 8.
HB 5603 would have 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 a 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, 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 May Be Revisited
Another issue that may come before the 2011 Legislature involves a First District Court of Appeal decision issued in 2010 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 pre-existing condition, compensation for the injury will be divided (or “apportioned”) so that compensation for the pre-existing injury is deducted from the amount the current employer or carrier is liable for. 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 “pre-existing condition” did not include any employment-related injuries.
The Staffmark 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 “pre-existing condition” was meant to include all prior injuries, whether work-related or not.
2010 Election Was a Game Changer
What a difference an election can make. Last year, some folks in the insurance industry and employer community wondered aloud whether the 2003 reforms cut injured workers’ benefits too deeply. Now, the man who occupies the governor’s mansion is calling for a 35 percent decrease in the cost of workers’ compensation insurance. SB 50-A was extremely popular with carriers and employers, and many employers would likely enthusiastically support any legislative measures that would reduce their insurance costs. Injured workers and the attorneys who represent them in workers’ compensation cases fought hard, if unsuccessfully, to defeat SB 50-A. They will fight even harder if attempts are made to further reduce benefits.
Last year, it was thought legislators might be under pressure to increase workers’ benefits in the 2011 session. Some legislators even raised the argument that because SB 50-A produced far greater savings than its proponents originally anticipated, the time had come to give some of those savings back in the form of higher benefits.
Today it seems unlikely that the Florida Legislature will roll back any of the 2003 reforms, and in fact the new governor is looking for ways to further reduce workers’ compensation insurance rates.
The 2010 election was in many ways a game changer, potentially bringing about bold initiatives intended to reduce regulatory burdens and lower the cost of insurance. The election of Scott, the increasingly Republican face of the Florida Legislature, and the political impact of the recent rate increase may combine to produce a climate in which Florida’s political leaders resume the search for ways to reduce workers’ compensation insurance rates.
The likelihood that Scott can find ways to cut workers’ compensation costs by 35 percent in the near term may seem like a stretch, but no more a stretch than the idea in the summer of 2010 that he would become Florida’s 45th governor. So, keep your eye on Gov. Scott as he applies his “Let’s Get to Work” message to the world of workers’ compensation insurance.