Why Workers' Comp Decision Could Benefit Employers

December 14, 2012Articles
Business Courier
As seen in the Business Courier.

All Ohio employers who are covered by the state insurance fund for workers’ compensation purposes could be impacted by an upcoming decision from the Court of Common Pleas in Cuyahoga County in a $1.38 billion class action case tried in August.

The case was filed by employers who were not in Bureau of Workers’ Compensation (BWC) group rating programs between 2001 and 2009. They sued the BWC, alleging that the BWC gave employers in group rating programs more credit than they deserved. Their argument: Employers who were not in BWC group rating programs had to pay higher premiums. Citing a number of actuarial studies, they contend that employers who did not join group rating programs between 2001 and 2009 subsidized the employers who were in group rating.

The BWC argues that it actually lost money on policies issued to non-group rated employers because their claims exceeded their premium by $861 million. They also challenge the calculation of damages, particularly for the 89,000 employers who “migrated” from group to nongroup status. Finally, the BWC raises a number of legal issues relating to the court’s jurisdiction and the class itself, any of which if decided in its favor, would dispose of the lawsuit.

On the face of it, the discounts for those employers who were in group rating were high, at least during some of the period. Today, the most an employer can receive in group rating programs is a little more than a 50 percent discount from the “base” rate.

Previously, employers could receive as much as a 95 percent discount. How one could sell insurance for 5 percent of base rates is a mystery to many. It is certainly a mystery to the plaintiffs in this case. Which is why, of course, they argued that employers receiving the largest discounts were subsidized by those who were not. Judge Richard McMonagle is to decide whether the BWC is liable and, if so, for how much.

Possible reimbursement for losses

This is strictly an argument between state fund employers and the BWC. The Ohio State Insurance Fund provides workers’ compensation coverage for all employees and for employers, except for those 1,200 or so large employers who are self-insured. So this case would not impact the benefits paid to injured workers, nor those employers who are self-insured. Regardless of the outcome, all injured workers will receive all benefits to which they are entitled.

On the employers’ side, the stakes are high. If the court rules in favor of the nongroup employers in the class action, then the BWC will have to reimburse employers for the losses they sustained. That includes all employers who, during one or more years between 2001 and 2009, did not participate in group rating.

Many employers over the time period at stake were both in a group rating program and out of a group rating program, depending upon the particular year. In other words, all employers had the opportunity to get into group rating, and many took advantage of it.

One of the questions to be decided is whether there will be an offset for those employers who participated in group for some of the years, but not for others.

The plaintiffs are asking for $1.38 billion. This is more than half of the premium collected by the BWC in any given year. Can the BWC afford it? According to the most recent financial report to its board, the BWC has “net assets” of $7.6 billion. As of the last fiscal year, the state fund contained $24 billion. All but the surplus is reserved for claims payments to injured workers, so it would appear that if an award is made in the amount requested, the BWC can make payment without resorting to a rate increase for all employers.

Employers who are in the class may receive a premium refund or a check from the BWC if the ruling is favorable. It might be a nice surprise for them. But even if a decision is made before year end, it is likely the BWC will appeal. Besides, the process of calculating amounts owed will almost certainly delay payments, so it would be unwise to make plans to spend the money any time soon.