PRIORITY ISSUE: Workers’ Comp Assessments
The Business Council is urging state lawmakers to reduce the cost of workers’ compensation by the automatic calculation of the assessment for the Second Injury Fund. Currently, the total amount to be raised from Second Injury Fund assessments is based on 150 percent of prior-year disbursements minus net assets in the Second Injury Fund. The Council proposes changing that to 110 percent. This proposal will save businesses approximately $150 million, more than 5 percent of their total spending on workers' comp.
What assessments are: The assessment is one of two components of employers’ workers’ compensation costs.
Workers' compensation costs have two components:
- premiums, which are rates employers pay to insure workers, and
- assessments, a surcharge on the total premium or total indemnity paid out by each employer.
Money collected from the assessments supports the administrative costs of the Workers' Compensation Board (WCB) and provides monies for funds such as the second injury fund.
The Second Injury Fund: The Second Injury Fund is the largest special funds supported by the assessment. It assumes, in certain cases, part of the permanent disability liability resulting from injuries to previously injured workers. In 2003 assessment for this fund employers totaled over $410 million.
Second Injury Fund Assessment Calculation: Each special funds assessment is calculated in a different way. The assessment for the Second Injury Fund is calculated by multiplying total disbursements of the fund for the previous year by 150 percent and subtracting the fund’s net assets. The formula was changed in 1996 from 175 percent to the current 150 percent.
The problem with the Second Injury Fund: The Fund has outgrown its original intent and is now being used by employers and insurance carriers to transfer liability of claims. The Second Injury Fund assessment inflates the cost of workers’’ comp costs.
Why the change is justified: The current assessment calculation assumes that total disbursements from the Second Injury Fund will grow by 50 percent every year. This assumption has ensured the fund a cushion of almost $200 million in the past two years. For the same time period, however, total disbursements have only grown by only 5 percent.
Under The Business Council’s proposal, the assessment for the fund would be calculated by multiplying the total disbursements of the fund for the previous year by 110 percent. The change to 110 percent would ensure the fund has enough money to meet all of its financial obligations without undue burden to employers. Reducing the assessment to 110 percent would produce a one time savings to the business community of $150 million.