Analysis Item 21: Department of Consumer and Business Services Workers Compensation Premium Assessment

Transcription

1 Analysis Item 21: Department of Consumer and Business Services Workers Compensation Premium Assessment Analyst: Matt Stayner Request: Acknowledge receipt of a report on changes to workers compensation premium assessment rates. Recommendation: Acknowledge receipt of the report. Analysis: Although specifically exempted from the SB 333 fee ratification process, statute requires the Department of Consumer and Business Services (DCBS) to report changes in workers compensation premium assessment rates made by the Department via administrative rule. The report presents changes to rates impacting revenues of the Premium Assessment Operating Account (PAOA) and the Workers Benefit Fund. Workers Benefit Fund revenue is primarily derived from a cents-per-hour assessment on all wages paid in Oregon. The rate is split evenly between employers and employees. A portion (1/16th of one cent) of the assessment supports a special payment to Oregon Health and Science University, Oregon Institute of Occupational Health Sciences for research on occupational illness and disease. Secondary revenue is from recovered claims cost from non-complying employers, fines, interest income, and other revenues. The fund supports a variety of programs that provide assistance to employers and injured workers. The rate is set to provide an adequate fund balance for projected claims and supported program expenditures. The rate information provided by DCBS on the cents-per-hour assessment is not required by statute to be included in the report, but has been provided by the agency as a courtesy and to provide additional context to the state of the workers compensation system as a whole. There is no change to the cents-per-hour assessment from the previous year s rate. The Premium Assessment Operating Account is funded through an assessment against the earned premiums of insurers providing workers compensation coverage, including the State Accident Insurance Fund, private, and self-insured employers and employer groups. The assessment percentage includes a general assessment rate for all employers and additional supplemental rates charged against policies of self-ensured employers, the proceeds of which fund adjustment reserve accounts. These funds are used to pay the claims of injured workers of these employers when they cannot obtain payment due to self-insured employer insolvency. The general assessment funds the Workers Compensation Division (including the Ombudsman for Injured Workers and the Small Business Ombudsman), a portion of the Oregon OSHA program, and the Workers Compensation Board. Generally, the premium assessment rate results from a basic formula that divides the net planned and forecasted expenditures and transfers by the forecasted premium base, with modifications for adequate fund balance. The DCBS report notes that a reduction in one of the factors that are used to derive premium rates (the pure-premium rate) will result in a reduction in the total assessable Legislative Fiscal Office Interim Joint Committee on Ways and Means November 2017

2 premiums that would have otherwise been forecasted, and would, therefore, reduce the total assessment revenue to the PAOA without an increase in the assessment rate. The following table illustrates the projected impact on earned premiums, the projected loss of assessment revenues at the anticipated realized rate (which is slightly lower than the stated rate), and the increase in the premium assessment rate that would be required to recoup the lost assessment revenues. Loss in earned premium due to pure-premium rate change FY 2018 FY 2019 FY 2020 FY 2021 Before pure premium change $ 900,301,760 $ 938,676,510 $ 989,145,640 $ 1,035,153,940 After pure premium change $ 867,377,680 $ 838,385,500 $ 849,509,540 $ 894,250,820 Difference $ (32,924,080) $ (100,291,010) $ (139,636,100) $ (140,903,120) Loss of assessment at realized rate $ (2,238,837) $ (6,819,789) $ (9,495,255) $ (9,581,412) Resultant realized rate increase required to negate revenue loss Rate Change LFO projected realized rate due to change in pure-premium only 7.070% 7.613% 7.918% 7.871% DCBS projected realized rate 7.024% 7.527% 7.762% 7.862% Variance % % % % In addition to the loss of assessment revenues due to reductions in the pure premium rate, the net expenditures and transfers of the PAOA supported programs are projected to increase during the next two biennia. The following table illustrates the net transfers and expenditure (expenditures and transfers less non-assessment revenues) increases and the required increase in the assessment rate that would be required to cover the additional increase. Change in net expenditures and transfers FY 2018 FY 2019 FY 2020 FY 2021 Change in net expenditures and transfers (from 2017) $ 4,089,413 $ 6,744,138 $ 10,103,664 $ 12,390,020 Realized rate change required due to change in transfers and expenditures The combined average realized rate increase required to resolve both of these issues is 1.53 percent for FY 18, which is a more than twice the.600 percent increase planned by the agency for calendar year The DCBS plan includes additional increases each calendar year with a target rate of 8.0% by This incremental change coupled with a projected upturn in total premiums by 2021 bring the account into structural balance by the beginning of 2022, but finances this gradual increase using the ending fund balance of the account, decreasing that balance from $49.5 million in 2017 to $40.2 million by the end of Based on the projected rate of expenses and transfers from the fund, this reduction represents a decrease in the number of months of reserve capital from 8.8 months to 6.0 months by the end of The Legislative Fiscal Office projects that a singular rate increase of 1.33% or a total stated rate of 8.128% beginning in calendar year 2018 would provide structural balance to the fund over the projection period and limit the decrease in working capital to 0.7 months. The DCBS plan, however, minimizes the impact to assessment payers and still provides an adequate fund balance as projected. The Legislative Fiscal Office recommends acknowledging receipt of the report. Legislative Fiscal Office Interim Joint Committee on Ways and Means November 2017

3 21 Department of Consumer and Business Services Heath Request: Report on an increase in the Workers Compensation Premium Assessment as required by ORS (6). Recommendation: Acknowledge receipt of the report. Discussion: In accordance with ORS (6), the Department of Consumer and Business Services (DCBS) is submitting a report on an increase in the Workers Compensation Premium Assessment. The Worker s Compensation Premium Assessment is the primary source of funding for the services provided by DCBS Workers Compensation Division, Oregon OSHA, and the Workers Compensation Board. The assessment is levied as a percentage of the workers compensation premiums earned by insurers (or by imputed premiums in the case of selfinsurers). On January 1, 2018, the rate will increase for the following groups as follows: Insurer Type Current Rate New Rate Premium Assessment Operating Account 6.8 percent 7.4 percent Self-Insured Employers 7.0 percent 7.6 percent Self-Insured Employers Group - Public Sector 7.0 percent 7.6 percent Self-Insured Employers Group - Private Sector 7.8 percent 8.4 percent The rates are increasing for two main reasons: first, the base on which the assessment is applied (that is, worker s compensation premiums) is projected to decline. The National Council on Compensation Insurance estimates Oregon employers will see an average decline in their pure premium rates of 14 percent during Second, expenses for the programs supported by the assessment are projected to increase, albeit more modestly. DCBS projects expenditures will grow by approximately 8.0 percent biennium over biennium. By way of comparison, the expansion of the Oregon OSHA inspection program, as approved by the 2017 Legislature accounted for approximately 0.1 percentage points of the 0.6 percentage point increase being made in Offsetting the rate increase is a slight decrease in the projected ending fund balance of the Premium Assessment Operating Account, from $48.4 million (7.8 months of expenditure) at the end of the 2017 calendar year to $45.9 million (7.4 months of expenditure) at the end of the 2018 calendar year. In producing their rates for the calendar year 2018, DCBS also forecasted rates needed to maintain current services over the next four years. Preliminary estimates for the calendar year 2019 indicate the rate will need to increase from 7.4 percent to 7.8 percent to maintain current services and a stable fund balance. The Department of Administrative Services - Chief Financial Office recommends acknowledging receipt of the report. Department of Administrative Services 21-i November 15, 2017

4 October 16, 2017 The Honorable Senator Richard Devlin, Co-Chair The Honorable Representative Nancy Nathanson, Co-Chair Interim Joint Committee on Ways and Means 900 Court Street NE H-178 State Capitol Salem, OR Dear Co-Chairpersons: Nature of the Request Report to the Interim Joint Committee on Ways and Means on workers compensation premium assessments. Agency Action Under the authority of Oregon Revised Statutes Chapter 656, the Department of Consumer and Business Services (DCBS) is authorized to collect assessments based on workers compensation insurance premiums from insurers, self-insured employers, and self-insured employer groups to support workers compensation-related programs administered by the department. ORS (5) requires that the assessment be developed through an administrative rule process, and ORS (6) directs DCBS to report the assessment rate to the Joint Committee on Ways and Means or, during the interim between sessions of the Legislative Assembly, to the Emergency Board or the Interim Joint Committee on Ways and Means. The rate changes are: Rate Current rate Rate effective January 2018 Premium Assessment Operating Account 6.8 percent 7.4 percent Self-Insured Employers 7.0 percent 7.6 percent Self-Insured Employers Group-Public Sector 7.0 percent 7.6 percent Self-Insured Employers Group-Private Sector 7.8 percent 8.4 percent Workers Benefit Fund 2.8 cents per hour 2.8 cents per hour Background Workers compensation pays injured workers for lost wages and medical care for job-related injuries. The assessment rate changes preserve the integrity of our workers compensation system. They do so by helping maintain a positive business climate for Oregon employers while also bolstering worker protections and benefits. Programs supported by the workers compensation premium assessments include Oregon OSHA, the Workers Compensation

5 Division, the Workers Compensation Board, the Ombudsman for Injured Workers, and the Small Business Ombudsman. Insurers collect these assessments from each covered employer in the state. The pure premium assessment, which funds state costs for running workers compensation program is being increase from 6.8 to 7.4 percent to support worker protection programs to keep pace with the expanding economy. Oregon employers will see a key portion of their workers compensation costs drop by an average of 14 percent in This marks the fifth consecutive decrease in the pure premium rate. The pure premium rate covers the portion of the premium employers pay insurers to cover claim costs for job-related injuries and deaths. It does not take into account the varying expenses and profit of insurance companies. The decrease in the pure premium rate is based on the recommendation from the Florida-based National Council on Compensation Insurance Inc. (NCCI), which analyzes industry trends and prepares rate recommendations for the majority of states. A steady decline in average medical care costs and wage replacement costs are the key factors that are driving down the pure premium rate. Pure premium reflects only a portion of workers compensation costs, but is the key factor behind annual cost changes. The decrease is an average, so an individual employer may see a larger decrease, no change, or even an increase, depending on the employer s own industry, claims experience, and payroll. The average decrease in the pure premium rate is part of a mixture of rate changes. The combination of the changes in pure premium rates and assessment rates is a net reduction in costs for the average employer. The average employer would pay 90 cents per $100 of payroll for claims costs and assessments, down from $1.03 in Oregon s workers compensation premium rates have ranked low nationally for many years. Only six states had average rates lower than Oregon in 2016, according to a biennial study conducted by DCBS. In contrast to changes made in some other states, Oregon has seen no meaningful reduction in worker benefits since at least the early 1990s. Action Requested DCBS respectfully requests that the Interim Joint Committee on Ways and Means acknowledge receipt of this report. Legislation Affected None. Sincerely, Jean Straight Acting Director