New York's workers' compensation system would undergo a sweepingoverhaul under a blueprint outlined in Gov. Andrew Cuomo's proposedbudget.

The critical change would charge the State Insurance Fund (SIF)the same premium-based assessment to the state that all privateinsurers must pay.

The proposal is likely to be approved by the state Legislaturebecause it is part of the comprehensive state budget Cuomo hasproposed, according to David Dickson, past president of theProfessional Insurance Agents of New York Inc.

But he cautions it is likely to have unintended consequencesdown the road.

Dickson, who is a public member of the New York CompensationInsurance Rating Board's underwriting committee, says the proposedreforms would raise the assessments paid by the 160,000 to 170,000employers insured by SIF by 10 percent.

He says employers impacted by the change would include mostlarge property-management and real-estate companies and most largesocial-service agencies, both private and public, as many of themare insured by SIF.

Moreover, because the proposal is designed to provide forincreased state spending without a tax increase, the proposedbudget also calls for reducing SIF's surplus by $1.75 billion overthree years.

The budget proposal calls for transferring $250 million to thegeneral fund and $500 million to a new “transformative capitalfund” this year from the SIF surplus, and $1 billion to the stategeneral fund for the 2014-2015 budget years.

Under the proposal, in addition to using the premium basis forSIF assessments, two separate funds now financed through workers'compensation premiums would be closed to new claims.

One is the reopened-case fund, to which every employercontributes, and the second is the Aggregate Trust Fund (ATF),which was created as part of 2007 reforms to the stateworkers'-compensation program.

Changing the SIF-assessment methodology is projected to saveemployers $500 million annually, while closing off the two funds tonew claims will save $400 million annually, the state projects,according to Alphonso David, deputy secretary for thegovernor.

According to David, the ATF was created in 2007 as an incentiveto both injured workers and insurers to close cases.

Shutting down the ATF, says PIANY's Dickson, has support fromcarriers. “Carriers have been complaining that if they assign aspecific claim to the trust fund with a specific value to thatclaim, [the difference is not refunded] if that claim is settledfor less,” Dickson says.

As for the reopened case fund, Dickson indicates there is broadsupport from all interested parties for closing it. “Pretty mucheveryone says that if sustained, this is a road that is going toget out of hand,” he states.

If enacted as outlined by the governor in his budget, accordingto a state budget official, the workers'-comp proposal could allaylongstanding criticism by the private-insurance market that theState Insurance Fund has a competitive advantage.

The New York Insurance Association, which represents the privatemarket, says it would support the proposed changes for thatreason.

“If the structure is changed so SIF would pay the sameassessment as private insurers, it would be a major step inleveling the playing field,” Ellen Melchionni, NYIA president,says.

However, she says, “Further action is still necessary to removeSIF's exemption from regulatory oversight.”

Currently, SIF has 36 percent of the New Yorkworker's-compensation market, according to SNL Financial, with$1.49 billion in premiums in a total market of $4.2 billion.

“The problem the state's private insurers have with SIF is thatit was created as the market of last resort, but in actuality it isnot,” Melchionni says.

She adds, “The intention was for SIF to provide insurance forbusinesses that were not able to find coverage elsewhere. InsteadSIF has become a major writer with a serious competitive advantageover private insurers.”

David says SIF “exists to providecoverage to people who cannot afford the privatemarketplace.”

Dickson, though, disputes thatcontention, noting that SIF was never designed to be anassigned-risk plan, but rather a competitive insurance fund thatcannot turn down risks unless they have an outstanding balance withthe fund.

At the end of the 2011 calendar year, the SIF had a totalsurplus of $2.796 billion, according to its annual report.

It also has claims reserves of approximately $8 billion and cashassets of $12 billion. The total balance sheet reflects changesimposed in 2007 to deal with serious solvency issues that requiredassessments from private insurers to repair, Davidacknowledges.

The largest private player in New York, according to 2011 data,is AIG, with 14.3 percent of the market. Liberty Mutual has 7.8percent of the market, the Hartford has 7.5 percent of the market,and Travelers has 5.6 percent of the market.