2123.E AMS CHAS NICH 097
EHB 2123 - S AMD 467
By Senators Chase, Nelson
NOT ADOPTED 05/23/2011
On page 30, after line 26, insert the following:
"PART 9. RETROSPECTIVE RATING PLANS
NEW SECTION. Sec. 901. The legislature finds that, according to the 2009 Wyman actuarial report, at least three miscalculations have occurred affecting the amount of refunds provided to the sponsors of retrospective rating plans with the participants of retrospective rating plans receiving substantial overpayments as a result of these miscalculations. These miscalculations include a recurring computer coding error which resulted in overpayments of about one hundred fifty million dollars, a misassignment of occupational disease claims resulting in overpayments of about three hundred million dollars, and a forty-five month adjustments limitation error which resulted in overpayments of about fifty million dollars. These overpayments have depleted the industrial insurance accident fund of at least five hundred million dollars, not including interest owed on the overpayments per RCW 51.48.260. The legislature finds that these overpayments have caused the accident fund to contain fewer assets than it otherwise would contain, requiring base premiums to be set at a level higher than would otherwise be necessary, and further causing the employers who are not members of a retrospective rating plan to subsidize retro members by inflating the amount of retro refunds beyond what was merited by the experience of retro member employers.
The legislature further finds that while retrospective refunds were intended to reward improved safety of retro agencies by returning amounts in excess of the difference between premiums paid and the developed cost estimate of claims owed, in many cases, retrospective refunds exceeded this difference by more than one hundred million dollars in a single year. For example, in the four quarters comprising the 2006 reporting period, retrospective program premiums paid were about seven hundred twenty-seven million dollars and retrospective developed claims were about seven hundred thirty million dollars for a loss of about three million dollars. Yet retrospective refunds during this period were about one hundred twenty-nine million dollars for a total loss to the industrial insurance accident fund of one hundred thirty-two million dollars.
NEW SECTION. Sec. 902. A new section is added to chapter 51.18 RCW to read as follows:
The legislature finds that the primary purposes of the retrospective rating program created in this chapter are increasing workplace safety, preventing accidents, and improving worker outcomes. The legislature finds that retrospective rating refunds are provided from the industrial insurance accident account, and that the use of Title 51 funds to improve workplace safety, prevent accidents, and improve injured worker outcomes are appropriate uses of such funds. The legislature further finds that any retrospective rating refunds not used to administer the retrospective rating group or to support the purposes of the retrospective rating program belong to and should be returned to the employer members of each retrospective rating group, with the sole exception that individual members may annually authorize use of retrospective rating refunds for purposes unrelated to worker safety and accident prevention, the primary purposes of the retrospective rating program, similar to the annual authorization required from the members of union organizations. The legislature therefore intends to allow and encourage retrospective rating group sponsoring entities to use retrospective rating refunds to create and maintain programs that improve workplace safety, prevent accidents, and improve worker outcomes while distributing the remainder of the refund to employer members of the group, subject to the optional annual authorizations by the members of each group. To restore public confidence in the use of retrospective rating funds, the legislature intends to make information concerning the sponsoring entities' administration of the program publicly available.
NEW SECTION. Sec. 903. A new section is added to chapter 51.18 RCW to read as follows:
Beginning January 1, 2012, and continuing for five consecutive years, the department shall:
(1) Conduct an annual actuarial review of the retrospective rating program. The actuarial review must include an examination of the method used to calculate retrospective premiums, refunds, and assessments, an examination of the impact retrospective rating refunds and assessments have on the accident fund, and an examination of any other factors necessary to conduct a thorough actuarial review.
(2) By December 31st of each year in which an actuarial review is conducted, report the contents of the review to the appropriate committees of the legislature.
NEW SECTION. Sec. 904. A new section is added to chapter 51.18 RCW to read as follows:
(1) With respect to refunds made by the department to a sponsor of a retrospective rating group on or after the effective date of this section:
(a) The sponsoring entity must distribute the retrospective rating refund or adjustment to employers in the retrospective rating group based on a distribution plan, less any amount retained by the sponsoring entity, within a time period selected by the sponsoring entity and set forth in the distribution plan. The distribution plan may not authorize a sponsoring entity to retain any portion of a refund or adjustment, except as authorized by this section. This distribution plan shall be provided to the department upon enrollment, and annually to the members of the retrospective rating group. The department shall make the distribution plan publicly available, excluding any financial information specific to individual employer members.
(b) The sponsoring entity may retain a portion of the refund for reasonable administrative costs. When any portion of the refund is distributed to the employers in the retrospective rating group, the sponsoring entity shall disclose to such employers and to the department the amounts of all administrative costs for which it has retained any portion of the refund and the specific purposes for which those costs were incurred.
(c) The sponsoring entity may retain a portion of the refund for costs directly related to the development and implementation of a safety plan to increase workplace safety and to prevent accidents. The safety plan shall be submitted to the department annually. The department shall develop rules to define the required elements of a retrospective rating safety plan.
(d) The sponsoring entity may retain a portion of the refund for costs directly related to claims assistance provided to its member employers.
(e) The sponsoring entity may retain a portion of the refund to establish and maintain reserves for the sole and exclusive purpose of covering the costs of future potential retrospective rating assessments and an amount of reserves necessary to protect against future penalties or other unexpected retrospective rating costs incurred during the same or a subsequent coverage year.
(f) The sponsoring entity must keep a detailed list of costs related to (b) through (e) of this subsection and report this list to the department and to employers in the retrospective rating group at the time the retrospective rating refunds or adjustments are distributed to members of the group.
(g) Any amounts retained by a sponsoring entity under (b) through (e) of this subsection shall be used solely for the purposes described in those subsections, and may not be used directly or indirectly for any other purpose.
(h) In addition to the amounts that a sponsoring entity may retain under (b) through (e) of this subsection, the sponsoring entity may retain a portion of the retrospective rating refund or adjustment due an employer member if the member has provided a written authorization allowing the entity to retain a portion of the refund or adjustment due the employer member. Any authorization provided by an employer member shall be effective for a period not to exceed one year. If a sponsoring entity retains funds due the employer member under this subsection, the sponsoring entity must notify the employer member that additional funds have been retained by the sponsoring entity, and inform the employer member of the amount withheld from the employer member under this subsection. The department shall develop a form to be separately executed by any employer member authorizing the retention of funds under this subsection, which form shall (i) authorize the retention of either a percentage of the member's refund or a fixed dollar amount, and (ii) inform the member that the authorization is irrevocable for one year. The sponsoring entity shall use the form developed by the department or a form prepared by the sponsoring entity that is consistent with this subsection and has been approved by the department.
(i) Any amounts retained by a sponsoring entity under (h) of this subsection may be used by the sponsoring entity for any legal purpose, even if such purpose is unrelated to worker safety and accident prevention.
(2) The group must comply with subsection (1) of this section to be approved by the department for future enrollment.
Sec. 905. RCW 51.18.030 and 1999 c 7 s 4 are each amended to read as follows:
(1) Entities which sponsored retrospective rating groups prior to July 25, 1999, may not sponsor additional retrospective rating groups in a new business or industry category until the coverage period beginning January 1, 2003.
(2) For retrospective rating groups approved by the department on or after July 25, 1999, the sponsoring entity may not propose another retrospective rating group in a new business or industry category until the minimum mandatory adjustment periods required by the department for the first two coverage periods of the last formed retrospective rating group are completed.
(3) Subsections (1) and (2) of this section do not prohibit a sponsoring entity from proposing to:
(a) Divide an existing retrospective rating group into two or more groups provided that the proposed new groups fall within the same business or industry category as the group that is proposed to be divided; or
(b) Merge existing retrospective rating groups into one business or industry category provided that the proposed merged groups fall within the same business or industry category as the groups that are proposed to be merged.
(4) Under no circumstances may a sponsoring entity propose retrospective rating groups in multiple business or industry categories in the same application to the department.
(5) An insurer, insurance broker, agent, or solicitor may not:
(a) Participate in the formation of a retrospective rating group; or
(b) Sponsor a retrospective rating group.
(6) A sponsoring entity may not require a participating member or applicant to: (a) Agree to reenroll in the group's future coverage period, (b) maintain membership in the sponsoring entity or any other organization beyond the coverage period, which includes the three-year period during which further refunds and assessments may be made, or (c) contribute funds to the sponsoring entity or any other organization in excess of the amounts authorized by this act.
NEW SECTION. Sec. 906. A new section is added to chapter 51.18 RCW to read as follows:
FULL DISCLOSURE OF RETRO AND NONRETRO LOSS RATIOS. With respect to refunds/subsidies made by the department to a sponsor of a retrospective rating group:
(1) If retrospective premiums, as a group, exceed retrospective developed claims, as a group, the amount refunded to retrospective agencies may not exceed the difference between premiums paid by retrospective agencies and the developed cost estimate of claims owed by retrospective agencies.
(2) If retrospective developed claims exceed retro premiums paid, the amount additionally assessed to retrospective agencies may not be less than the difference between the developed estimate of claims owed by retrospective agencies and premiums paid by retrospective agencies.
(3) The department must provide evidence and information to the public on its web site fully documenting and explaining how the retrospective refund/subsidy calculation for each reporting period was determined including complete data on retro premiums paid and developed losses and nonretrospective premiums paid and developed losses for the same period and a comparison of retro to nonretrospective premiums paid and developed losses so that the public can readily determine from the evidence and information provided that, after all retrospective refunds and assessments, the loss ratios of retro and nonretrospective employers have been properly equalized.
NEW SECTION. Sec. 907. A new section is added to chapter 51.18 RCW to read as follows:
FULL RECOVERY OF ALL OVERPAYMENTS TO RESTORE THE ACCIDENT FUND. With respect to refunds made by the department to a sponsor of a retrospective rating group:
(1) The department is required as provided in RCW 4.16.160 and 51.48.260 and WAC 296-17-90402 to accurately determine the cost of all overpayments due to the actuarial unsound accounting practiced uncovered by the 2009 Wyman actuarial report. These unsound practiced are inconsistent with WAC 296-17-90402 and resulted in overpayments to retrospective groups included an annual recurring computer coding error, resulting in an estimated one hundred fifty million dollars in overpayments, an occupational disease misassignment error resulting in an estimated three hundred million dollars in overpayments, and a forty-five month adjustment limitation error resulting in an estimated fifty million dollars in overpayments.
(2) The department is required as provided in RCW 4.16.160 and 51.48.260 and WAC 296-17-90402 to collect all overpayments plus interest and restore these funds to the industrial insurance accident fund such that, for all past periods, the proportion of retrospective to nonretrospective premiums to developed claims is restored to the intended balance.
(3) No further refunds are to be issued to retro agencies until all past overpayments have been recovered and paid back to the industrial insurance accident fund with interest.
(4) A fourth retrospective adjustment period must be added at sixty months to more accurately determine long-term costs of retrospective programs and to more accurately determine the cost differences between the retrospective and nonretrospective programs.
(5) The department must adopt policies and procedures to assure greater transparency of all income and expenses of all retrospective programs.
NEW SECTION. Sec. 908. A new section is added to chapter 51.18 RCW to read as follows:
(1) The department is required to review all past retrospective refunds and submit a report to the legislature by December 1, 2011, identifying any past cases when retrospective refunds exceeded the difference between retrospective premiums paid and retrospective developed losses and whether such refunds maintained equitable ratios compared to nonretrospective groups.
(2) The department is required to develop a plan to restore the contingency reserve to a minimum of twenty percent of basic plan liabilities within the next ten years.
NEW SECTION. Sec. 909. A new section is added to chapter 51.18 RCW to read as follows:
Any overpayment recovered pursuant to section 907 or 908 of this act must be deposited in the rainy day account created in section 601 of this act."
Renumber the remaining sections consecutively and correct any internal references accordingly.
|
|
EFFECT: Requires L&I to conduct an annual actuarial review of the retro program and report to the legislature.
Requires retro sponsoring entities to distribute rating refunds or adjustments to employers based on a distribution within a time period set forth in the distribution plan.
Any amounts recovered from overpayment recovery is to be deposited in the rainy day account.
|
--- END ---