BILL REQ. #:  S-1700.1 

Read first time 02/16/09.   Referred to Committee on Labor, Commerce & Consumer Protection.

     AN ACT Relating to retrospective rating plans; amending RCW 51.18.030 and 51.18.040; adding new sections to chapter 51.18 RCW; and creating a new section.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature finds that a recurring miscalculation of refunds provided to the sponsors of retrospective rating plans has depleted the industrial insurance accident fund of more than one hundred million dollars, and perhaps as much as one hundred fifty million dollars, with the participants in the retrospective rating plans receiving the benefit of that miscalculation. In some cases, those overpayments to the sponsors of retrospective rating plans have been returned to employer members of those plans and in some cases have been used to fund the activities of the sponsors of those plans. As the premiums paid by employers into the accident fund are based in part upon the solvency of the fund, the legislature finds that 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 although the overpayment by the department of labor and industries was not intentional, the error resulting in the overpayment was not identified in the numerous reviews and analyses that have been conducted in the fifteen years since the erroneous calculations began. The legislature finds that additional evaluations and increased transparency of the retrospective rating system are needed.

NEW SECTION.  Sec. 2   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. 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. 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. 3   A new section is added to chapter 51.18 RCW to read as follows:
     Beginning January 1, 2010, 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 1st 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. 4   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) Except as otherwise provided in (b) through (e) of this subsection, the sponsoring entity must distribute the full amount of the refund to employers in the retrospective rating group within ninety days of receipt of the refund by the sponsoring entity.
     (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. The amounts retained shall be distributed to the employer members of the retrospective rating group within ninety days after the possibility of future assessments has expired.
     (f) The sponsoring entity must keep a detailed list of costs related to (c) 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 (c) 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) The sponsoring entity must distribute the remainder of any retrospective rating adjustment to employers in the retrospective rating group based on a distribution plan. This distribution plan shall be disclosed to the department and 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.
     (2) The group must comply with subsection (1) of this section to be approved by the department for future enrollment.

Sec. 5   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 to reenroll in the group's future coverage period, maintain membership in the sponsoring entity or any other organization, or contribute funds to the sponsoring entity or any other organization, as a condition of receiving a refund for a coverage period or of participating in the retrospective rating activities of the sponsoring entity.

Sec. 6   RCW 51.18.040 and 1999 c 7 s 5 are each amended to read as follows:
     (1) In order to ensure that all retrospective rating groups are made up of substantially similar employers ((who are substantially similar, considering the services or activities performed by the employees of those employers)), the sponsoring entity of a retrospective rating group shall select a single, broad industry or business category for each retrospective rating group. Once an industry or business category is selected, the department shall allow all ((risk classifications reasonably related to)) employers in that business or industry category into that retrospective rating group.
     (2) The following broad industry and business categories shall be used by the sponsoring entity and the department in establishing retrospective rating groups:
     (a) Agriculture and related services;
     (b) Automotive, truck and boat manufacturing, sales, repair, and related services;
     (c) Construction and related services;
     (d) Distillation, chemical production, food, and related services;
     (e) Facilities or property management, maintenance, and related services;
     (f) Government, utilities, schools, health care, and related services;
     (g) Health care, pharmaceutical, laboratories, and related services;
     (h) Logging, wood products manufacturing, and related services;
     (i) Manufacturing, processing, mining, quarrying, and related services;
     (j) Retail stores, wholesale stores, professional services, and related services;
     (k) Temporary help and related services; and
     (l) Transportation, recycling, warehousing, facility maintenance, and related services.
     (3) The industry and business categories in subsection (2) of this section are not exclusive. ((In response to significant changes in marketplace demographics or the discovery of unique business or industry categories,)) The department may, by rule, ((include additional)) modify the broad industry or business category selections. The department may, by rule, remove an industry covered within an industry or business category in the event that the business or industry is no longer found within this state. (((4))) Given the broad nature of the industry and business categories ((in subsection (2) of this section, the)), risk ((classification or)) classifications assigned to an individual employer may appropriately fall into multiple ((business or industry)) categories.
     (((5) In order to simplify administration and keep the administrative costs associated with devising a different classification system for a retrospective rating plan to a minimum, the state's retrospective rating plan shall follow the same classification procedure established by the department to assign workers' compensation insurance classifications to an employer.
     (6))) (4) For employers that are assigned to risk classifications the department has identified as belonging in a category, the department shall allow the employer into a group that has selected that category. The department shall develop rules for the group participation of employers assigned to risk classifications that do not fall within a category.
     (5) Employers who have been a member of an existing, approved retrospective rating group prior to July 25, 1999, may continue in that group even if they ((are not substantially similar to)) do not fall within the industry or business category selected pursuant to subsection (1) of this section. However, new employers proposed for addition to a retrospective rating group on or after July 25, 1999, must fall within the selected industry or business category.