Does Florida Need Workers' Compensation Reform?
I support workers compensation insurance reform that assures the quick and efficient delivery of disability and medical benefits to an injured worker and facilitates the worker’s return to gainful reemployment at a reasonable cost to Florida’s businesses. A reasonable cost to Florida’s businesses must have a foundation fortified by the statutory right to transparency in the rate making process, actuarial sound rate proposals, market competition, and the return of any resulting excess profits to Florida’s employers.
Florida businesses are facing a significant increase to workers’ compensation premiums effective December 1, 2016. However, the need for such increase has not been sufficiently substantiated by NCCI (National Council on Compensation Insurance – the licensed rating organization making filings on behalf of approximately 95% of the work comp insurance companies in Florida) nor the Office of Insurance Regulation (OIR).
Existing law states:
“It is the intent of the [Florida] Legislature that the Workers’ Compensation Law be
interpreted so as to assure the quick and efficient delivery of disability and medical
benefits to an injured worker and to facilitate the worker’s return to gainful reemployment at a reasonable cost to the employer.” Florida Statutes Section 440.015 (2003).
The legislative intent of Florida Workers’ Compensation laws essentially creates a statutory
presumption that Florida businesses should not be required to pay workers’ compensation
premiums exceeding what is adequate to fund the delivery of disability and medical benefits to their injured workers and facilitate the return to work. Transparency and market competition in rate making together with good faith provision of benefits by insurers are the keys to creating the ideal self-executing system.
In 2003, Florida’s Workers’ Compensation Insurance rates were 2nd highest in the nation. Because these rates were considered threatening to Florida’s competitiveness, significant legislative reform to the workers’ compensation system was passed without due consideration for the rights of injured workers. These reforms restricted the types of benefits to be paid to or on behalf of injured workers, including the number of weeks of temporary disability benefits that can be paid to catastrophically injured workers, eliminating the worker’s right to choose medical providers, drastically cutting compensation for workers with severe psychiatric injuries and anyone over the age of 75, and placing unreasonable caps on fees for lawyers representing injured employees. Following these reforms, rates dropped by almost 61.9% from 2003 to 2011 representing a much more significant decrease than originally estimated by those pushing reforms. Since 2011, rates have climbed to some degree, but still remain well below 2003 rates.
On April 28, 2016, the Florida Supreme Court ruled in the Marvin Castellanos v. Next Door
Company, et al. (“Castellanos”), Case No. SC13-2082 that the attorney fee cap in workers’
compensation cases put into place through legislation in 2003 and 2009 was unconstitutional. In
June, 2016, the Florida Supreme Court also found the arbitrary statutory limit of 104 weeks of
temporary total disability benefits to be unconstitutional. Bradley Westphal v. City of St.
Petersburg, etc., et al. (“Westphal”), Case No SC13-1930. Then, effective July 1, 2016, Senate Bill 1402 (Chapter 2016-203, Laws of Florida) became law ratifying the Florida Division of Workers’ Compensation’s updates to the Florida Workers’ Compensation Health Care Provider Reimbursement Manual, 2015 Edition.
Following the “Castellanos” decision, NCCI initially filed a request for a 17.1 percent increase in Florida workers’ compensation premiums, but amended this request to a 19.6 percent increase following the “Westphal” decision and ratification of Senate Bill 1402. After the public hearing on NCCI’s proposed increase, OIR issued an Order on Rate Filing dated 9/27/2016 rejecting the justification for the 19.6% increase, but stating a 14.5% amended increase proposal would be approved effective December 1, 2016. Of this, 10.1% was found to be attributable to “Castellanos,” 2.2 percent attributable to “Westphal,” and 1.8% attributable to Senate Bill 1402 (2016). While OIR found the NCCI recommended rate of 19.6% was not supported, the Commissioner provided no justification for why the suggested 14.5% would be acceptable and reasonable for Florida businesses.
Although each of the above events contributed to the overall recommended rate increase
affecting Florida businesses, the most controversial issue arises primarily from NCCI’s and
OIR’s inclusion of the “Castellanos” ruling regarding carrier paid attorney fees in the rate
The inclusion of carrier paid attorney fees as a risk consideration in workers’ compensation
ratemaking is improper. Florida businesses should not be required to bail out insurance companies with business models that create significant attorney fee liability.
The workers’ compensation statute is intended to be a no-fault self-executing system without the need for litigation. However, practically speaking, there is always the need for checks and balances in such a system to ensure rights are protected and responsibilities enforced. As a result, Florida’s legislature in designing this system, made sure there were provisions in the law to encourage compliance by all parties. For instance, F.S. 440.06 and 440.10 are intended to motivate and ensure employers comply with coverage requirements, F.S. 440.105 abolishes a fraudulent claimant’s entitlement to benefits and subjects him/her to criminal prosecution, and F.S. 440.34 requires insurance carriers to pay an injured worker’s attorney fees should it wrongly deny a claim or benefit. While other lines of insurance must exercise “good faith” in the adjustment of claims, Workers’ Compensation carriers are statutorily exempt from the ramifications of Florida’s Bad Faith Statute (See F.S. 440.11 for the exemption.) This makes the issue of carrier paid attorney fees to injured workers the only check and balance in the work comp system to motivate a carrier to implement a business model of good faith claims adjustment. When a construction company fails to secure comp coverage, the company is subject to fines and stop work orders. Just as we would not support a state sanctioned fundraiser to help the construction company pay its fine, the state should not stamp approval to the actions of work comp carriers going to Florida’s businesses with hands out demanding help in paying attorney fees that could have been avoided had the carrier just complied with the law.
NCCI argues (on behalf of the Florida workers’ compensation carriers it represents) the
“Castellanos” ruling creates a extremely large “unfunded liability” (perhaps as much as a billion dollars) for payment of attorney fees that, in turn, warrants the significant increase in premiums to be paid by Florida businesses. However, an insurance company is not required (under the work comp statutes or the “Castellanos” decision) to pay attorney fees for injured workers unless it is first given a reasonable opportunity to review the claim and then wrongly denies such claim, therefore, the responsibility for payment of attorney fees is to a large degree within the control of the insurance carrier and can be managed through the business model of such carrier in how claims are investigated and adjusted. In light of NCCI’s claim of such an extremely large “unfunded liability” for payment of attorney fees, investigation should be undertaken to determine why so many proper claims of injured workers were denied and litigated by work comp carriers. While the “Castellanos” decision does eliminate the unreasonable caps on attorney fees and such elimination has created a significant increased liability for certain work comp carriers to now pay reasonable fees for choosing to deny legitimate claims, it is not the responsibility of Florida businesses to bail out those carriers having business model of wrongly denying the claims of legitimately injured workers.
Florida businesses will benefit from greater transparency and competition in the Florida
Workers’ Compensation Rate-making Process, as well as a return of any excess profits
resulting from the projective rates.
Per the requirements of F.S. 627.091, workers’ compensation carriers in Florida are required to file with OIR every rating plan and any modifications thereof, and such filings and supporting documentation shall be open for public inspection. An insurer is allowed to satisfy its requirement to make such filings by becoming a member of a licensed rating organization which will make such filings on its behalf. If a rating organization is so designated by a Florida carrier, its committee with the responsibility for recommending rates in Florida must comply with F.S. 286.011 (Florida Sunshine Laws) when it meets to discuss the necessity for increases, decreases or other matters involving the determination of Florida rates. This includes giving specific prior notice of such meetings, making all such meetings public, and keeping minutes of meetings that are open to inspection. The purpose of Florida’s Sunshine Laws is to provide the public with an opportunity for oversight and accountability, the cornerstones of our state’s open government laws.
NCCI is a licensed rating organization as contemplated by F.S. 627.091, and currently represents over 95% (?) of the workers’ compensation carriers in the State of Florida for the purpose of filing proposed rate plans. Florida businesses have a right and will benefit by NCCI being required to follow the mandates of F.S. 627.091. Allowing the contrary goes against the intent of the Legislature and the express wishes of the people of Florida who have embraced open government time and time again.
In the vast majority of states in the U.S., workers’ compensation premiums in the market are
determined through a competitive ratemaking process. Florida is one of only 4 states in which NCCI operates that still utilizes an antiquated administered ratemaking system with no market component. NCCI files one set of minimum rates to be used in the standard market by all insurance carriers. Then, OIR administratively decides, based on information provided by
NCCI, whether to adjust this single rate up or down. The result is that workers’ compensation is the only line of insurance not featuring some form of competition in the rate making process.
The FLORIDA WORKERS’ ADVOCATES supports a change in the rate making process for workers compensation premiums that will protect traditional notions of transparency and bring
elements of competition. When transparency and competition exist in a market, consumers
benefit and better products are available. Our members believe that when businesses are allowed to compete to deliver the best product at the best price, the market weeds out inefficient and ineffective businesses. The same can be said of insurance companies competing to deliver the best coverage at the best price. Additionally, should projected rates based on actuarial sound predictions ultimately create excess profits for insurance carrier’s, Florida Businesses deserve the security of knowing such profits will be returned to them rather than being retained by the insurance companies.