Parting Shots: Stay the Course on Florida Workers’ Comp Reform

Long-needed, comprehensive reforms to Florida’s troubled workers’ compensation system passed during last May’s special session of the Legislature, culminating a long-term effort by Florida’s business and insurance industry coalition, with the support of Gov. Jeb Bush and legislative leaders.

Just six months have passed since SB 50A’s Oct. 1 effective date, and implementation of the new law’s cost-cutting and benefit-boosting provisions is now well underway. But amid the positive signs to date are some impatient voices calling for the Legislature to dismantle these reforms before their impact is even felt.

Lest we be so quick to forget, let’s remember the circumstances that culminated in last year’s reforms.

Florida’s workers’ comp system had achieved the unenviable reputation as one of the most expensive systems in the country for employers, yet also provided the lowest statutory benefits to injured workers. A January 2002 study found that Florida employers were paying the second-highest rates based on premiums charged of any state in the country: an average of $4.50 for every $100 of payroll. Carriers were paying out $1.27 in claims for every dollar of premium.

Insurers were facing exploding claim costs that in turn hiked workers’ comp costs for our business customers and reduced the availability of coverage. Everyone knew the comp system was at a critical juncture: either pass major reforms in 2003, or see costs continue to rise, with the resulting negative impact on Florida’s employers and economy.

SB 50A accomplishments
S.B. 50A addressed almost all of the cost drivers identified as presenting a serious threat to the financial stability of the Florida workers’ comp system. Among SB 50A’s accomplishments:

* Reduces attorney involvement by eliminating hourly fees – a significant accomplishment in light of intense trial bar opposition that continued unabated until the very end. In Florida, claim costs when attorneys are involved were nearly 40 percent higher than in other states;
* Restores the original intent of Permanent Total Disability (PTD) by more closely aligning PTD eligibility with physical inability because of the injury to earn any wages. This meant eliminating a link to a confusing and litigious Social Security Disability test, requiring workers to suffer a truly catastrophic injury that makes them incapable of performing any work, thereby reducing PTD costs significantly;
* Controls medical costs by moving to a Medicare-based fee reimbursement approach, which reduces reimbursement levels for hospital care while increasing reimbursement levels for medical providers – among the lowest in the nation – to ensure appropriate access to care;
* Strengthens causation between injury and work by requiring proof that a claimant’s injury is the “major contributing cause” of any inability to work – and properly defining that term; and,
* Repeals construction industry exemptions through which contractors could avoid participation. Under previous law many uncovered workers who were injured could receive benefits through a contractor who never purchased coverage for them.

The positive impact for employers was almost immediate: the National Council on Compensation Insurance (NCCI) filed for – and the state Office of Insurance Regulation approved – a 14 percent decrease in rates weeks after the law was signed. NCCI estimated a cost savings of $420 million to businesses due to the 14 percent rate decrease.

But these lower rates don’t yet match up to the system costs already in the pipeline.

Editor’s note: To see the full story, see the March 22 issue of Insurance Journal Southeast. Cecil Pearce is vice president of the Southeast region for the American Insurance Association (www.aiadc.org/)