Daily Legislative Update Affecting Workers Comp.

WORKERS’ COMPENSATION IN SPECIAL SESSION

The Call for a Special Session to begin on May 19 was issued yesterday and it did include a workers’ compensation issue.

The State Chamber/AIA Executive Committee met this morning and voted unanimously to continue our long-standing position, which is claims should be stopped going into the Death and Permanent Total Disability Trust Fund and should only be done with a provision to mitigate the cost increases to employers. The Committee does not see this issue so urgent that it needs to be considered in this or any Special Session.

All employers in Arkansas with more than three employers will be impacted by this issue.

We’ve heard from some self-insured employers that have already estimated their future annual claim cost increases. They reported cost increases ranging from $150,000 to $1 million. The cost of these significant claims continues annually for years. Insured employers can expect a 3 to 4.6 percent increase in workers’ compensation insurance premiums.

We encourage all employers to consider the impact on their business if their business incurs a death or permanent total disability claim.

Self-insured companies would become responsible for the entire cost of these claims instead of the first $204,000

Insured companies should consider the impact of a workers’ comp premium tax increase.

We encourage all employers to speak with your State Senator and State Representative about the cost increase risk to your business and why this issue is being considered in such a rush with little opportunity to consider the cost impact on employers.

The available draft bill would do only one thing, stop new death and permanent total disability claims from being paid for by the Workers’ Compensation Commission’s Death and Permanent Total Disability Trust Fund. It provides no mitigation for the cost increases to employers.

Stopping new claims to the Fund is needed because it’s underfunded, but the Fund has enough resources to pay existing claims for about 10 years. So there is time to look for a way to mitigate the cost increase impact on employers.

Here are some talking points that should also be addressed in meetings with legislators.

• The Trust Fund is funded entirely by a 3 percent premium tax that is paid by insured companies and self-insured companies.
o The Insurance Department provides rating information to the self-insured companies, who then calculate what their premium costs would be if insured and then they remit 3 percent of that amount to the Workers’ Comp Commission, which has authority to review the estimated premium amount
o This is Special Revenue NOT General Revenue to the state
• Stopping new claims will NOT reduce the premium tax
o Employers would continue paying premium taxes until all of the claims are paid off or there is a clear projection that the Fund would have enough money to pay all of its claims even if the tax revenue is stopped
• Claim payments will continue for about 20 years or more after new claims are stopped
• The Fund has enough resources to continue paying claims for about 10 years
• There is time to seek a solution to the Fund without rushing it through a special session with no consideration of cost increases to employers
o The Fund currently has enough assets to make claim payments until about 2030 (with continued revenue and new claims stopped)

This is a brief outline of the issue we shared with legislators over the past weekend:

Workers’ Compensation Commission
Death & Permanent Total Disability Trust Fund

Fund Revenue
– Employers are the only “Tax Payers” that Provide Revenue for the Fund
o 3 percent Premium Tax goes to Commission
 Commission uses 1.35 percent for operations and 1.65 percent goes to Fund
• Self-insured companies also pay a premium tax
– Investment Income
o Very low risk investments, recently improved from only CDs

Fund Claim Payments
– Employers pay first $204,000 and Fund pays the rest of every claim
o Claim examples:
 Claim cost $1 million
• Currently employer would pay $204,000 and Fund pays balance
• Without the fund, employer would pay $1 million
 Claim cost $500,000
• Currently employer would pay $204,000 and Fund pays balance
• Without the fund, employer would pay $500,000

Fund Responsibility
– Currently NO General Revenue dollars are used
– Employers understand they are solely responsible for Fund revenue
o Employers don’t want the Fund to go broke
 Solutions sought since 2007
• Ending fund is important but self-insured employers need help to mitigate claim cost shift
– Exposure to State would only arise in more than a decade IF:
o the Fund went broke and no solution was adopted through the Workers’ Compensation Commission with Employers
 Employers have always been committed to protecting the Fund’s financial responsibilities

Special Session Action is premature
– Solution needed to mitigate employers’ claim cost increases
– Savings to Fund by quick action are fractional compared to Fund finances
o Controversies over mitigation methods are most suited for a Regular Session