State Ponders Worker’s Comp Rate Cut
Florida’s insurance commissioner is considering whether to sign off on an average 5.4 percent reduction in workers’ compensation insurance rates despite an ongoing debate about the effects of a state Supreme Court ruling that allowed higher attorney fees in workers’ compensation legal battles.
A 2016 ruling, in a case known as Castellanos v. Next Door Company, tossed out a restrictive cap on what attorneys for injured workers could be paid.
But those increased legal costs are outweighed by other positive trends in the workers’ compensation system, including a reduced number of on-the-job injuries and improving technology that helps insurance companies better manage health-care costs, according to Jay Rosen, an actuary with the National Council on Compensation Insurance.
“Here’s the punchline: What we’re seeing is the increases in costs associated with the Castellanos decision have been more than offset by the improved experience we’ve seen in the workers’ compensation industry,” Rosen told Insurance Commissioner David Altmaier and other regulators during a hearing Friday on the proposed rate reduction.
Rosen said attorney involvement in workers’ compensation disputes has been increasing since the 2016 Supreme Court ruling.
Attorney fees accounted for 13 percent of benefits and settlements in 2014. In 2018, that figure soared to 22 percent, Rosen said.
But attorney fees comprise just a portion of the costs in the workers’ compensation system. Rosen said that medical costs are growing at a much slower rate and that reserves insurance companies are setting aside to pay medical claims are decreasing.
Rosen attributed that to a number of factors, including improved health-care technology that allows for quicker treatment of injured workers and changes in prescribing drugs.
“Even in Florida, over the last four years the number of drug claims that has had at least one prescription for an opioid has fallen 20 percent,” he said.
The National Council on Compensation Insurance, known as NCCI, makes annual rate filings for the workers’ compensation industry. The state insurance commissioner then determines whether to approve the filings or require changes.
The 5.4 percent proposed reduction in rates for 2020 is based on claims-experience data as of the end of 2018.
More than 90 percent of the data analyzed came from policies that took effect after the 2016 Supreme Court decision on attorney fees, according to NCCI.
The state had 242 insurance companies writing workers’ compensation policies in 2017, the latest available data from the Office of Insurance Regulation. The companies wrote $3.18 billion in premium.
Workers’ compensation is meant to be a self-executing system that provides health benefits and lost wages to injured workers while protecting employers from civil lawsuits stemming from on-the-job injuries.
While the system generally is set up to avoid lawsuits, disputes about workers’ benefits can often lead to legal fights, which is when attorney fees come into play. Florida business interests have pushed for the Legislature to revisit attorney fee restrictions since the court ruling. But their efforts have been thwarted, in part, because annual premiums have generally dropped.
While the Office of Insurance Regulation approved a 14.5 percent increase in 2016 following the ruling, Insurance Commissioner David Altmaier subsequently approved rate reductions. In 2019, rates dropped 13.9 percent, after decreasing an average 9.5 percent in 2018.
Bill Herrle, the Florida executive director of the National Federation of Independent Business, said NCCI’s data underscores that attorney fees are a growing problem in workers’ compensation.
“(The) testimony showed that, despite the declining workers’ comp rates, attorneys fees as a portion of settled claims have nearly doubled since the Castellanos opinion,” Herrle said in a statement. “Commissioner Altmaier’s leadership on the issue will make a real difference.”
While Herrle’s group, which represents small businesses, wants Altmaier’s assistance on attorney fees, the Florida Roofing and Sheet Metal Contrators Association would like the commissioner to use his influence to help make workers’ compensation changes related to professional employer organizations, which provide outsourcing services.
Under current law, contractors can be held liable for the workers’ compensation costs of subcontractors if the subcontractors use professional employer organizations, or PEOs, said Florida Roofing and Sheet Metal Association member Ralph Davis.
“We are not opposed to PEOs, we believe they have a market to serve,” Davis, owner of Streamline Roofing and Construction in Tallahassee, said at the rate hearing. “We simply want to close the loophole that allows unscrupulous parties to avoid their obligation under the law. Our goal is to keep Florida workers’ compensation system fair, equitable, self-executing and an exclusive remedy, as it is intended to be for the protection of Florida’s employees and employers.”