NCCI Rate Hike Could Be Far Worse, Actuaries Say

Wednesday August 17, 2016

By Todd Foster –

A consulting actuary and an economist testified Tuesday that a proposed 19.6% workers’ compensation rate increase in Florida might be half of what is needed in response to a pair of state Supreme Court rulings that favored claimants’ attorneys and injured workers.  

Mike Helvacian, an economist retained by the Florida Justice Reform Institute to analyze the recent court decisions, predicted first-year costs would rise by 35.4%, well above the increase proposed by the National Council of Compensation Insurance.

NCCI-hired actuary Steve Lattanzio testified that his projected range of cost increase from Castellanos v. Next Door Co. alone would range from 18% to 38%.

Both were among 20 stakeholders who testified for and against NCCI’s proposed rate hike for a four-hour public hearing in Tallahassee before the Florida Office of Insurance Regulation.  NCCI is Florida’s sole licensed rating organization and is authorized to make rate filings on behalf of the state’s 260 workers’ comp carriers. 

Claimants’ attorneys, a labor leader and an actuary hired by Florida Workers’ Advocates testified that NCCI’s actuarial findings were deceptive and misleading, and urged regulators to force the rate-maker to release all of its worksheets and data, and to comply with other tenets of the open meetings and records laws.

Lattanzio, president and consulting actuary of Bohemia, N.Y.-based Actuarial & Technical Solutions, said the Supreme Court’s April 28 ruling in Castellanos will set Florida back to before 2003, when massive reforms were enacted after the Sunshine State climbed to first and second for the nation’s highest workers’ comp rates in the early 2000s.

Florida has a long way to go.  According to a rate benchmarking study by the Oregon Department of Consumer and Business Services, the state’s average premium cost of $1.82 was 28th in the nation in 2014.  Even if 20% had been added to that, Florida would have still fallen well below the top 10.

The Supreme Court ruled in Castellanos that capping attorney fees based on a schedule was unconstitutional because it barred reasonable fees in some instances.   NCCI says that Castellanos ruling alone requires a 15% rate increase and will cost employers $544 million in higher premiums in the first year.  

“Fifteen is a reasonable number,” said Lattanzio, a former vice president at NCCI.  “If, however, the true value ends up being more akin to plus 38 at the top end, then obviously the plus 15% looks very inadequate.”

NCCI says another Supreme Court ruling, Westphal v. City of St. Petersburg, in which the cap of 104 weeks on temporary disability benefits was raised back to 260 weeks, required an additional 2.2% rate increase, or $80 million in higher premiums.   In addition, the rate-maker said updates to the state’s health care reimbursement manuals would require a 1.8% rate increase.

That kind of impact goes directly against the mission of the Justice Reform Institute, which pledges to fight “wasteful civil litigation” and “wealthy personal injury trial lawyers.”  The Institute’s consulting economist, Helvacian, said the court decisions would reverse the effects of Senate Bill 50A, which passed in 2003 with reforms that included capping attorney fees based on a percentage of benefits.

The legislation also provided greater compliance and enforcement authority to combat fraud, and lowered indemnity benefits for some injured workers.  

Helvacian said tying attorney fees to the benefits they secured for injured workers has reduced costs in Florida by 28.6%, or nearly half of the 60% in decreases experienced in the past 13 years.

“This will fundamentally alter the way workers’ compensation dispute resolution is handled and will raise costs 35.4%.  This will have very serious repercussions for doing business in Florida,” Helvacian said.

Helvacian worked for NCCI between 1993 and 2000 as chief economist and director of research, according to the Goodman Insitute of Public Policy Research, where Helvancian is listed as an “expert.”

He predicted Florida employers would pay $1.3 billion more in premiums per year because of the Supreme Court rulings. “That will translate to a loss of 106,000 jobs per year,” Helvacian said.   

Steve Alexander of Tallahassee-based Alexander Actuarial Consulting said NCCI looked just at the attorney-fee provisions of SB 50A and ignored the other myriad changes to the workers’ compensation law that were enacted in 2003.

Given regional and national trends of decreasing costs, Florida’s rates would have dropped 35% over the past 13 years without any reforms, said Alexander, speaking on behalf of Florida Workers’ Advocates.  Instead a 19.6% rate increase, he said a 5.7% hike would be more adequate.

 “These 2003 reforms were so closely intertwined that there’s no an actuarially sound way to separate the attorney fee schedule from all the other reforms,” he said.  “It’s misleading and deceptive.”

“OIR should encourage insurers to file deviations from NCCI’s rates,” Alexander said. “You should require individual insurers for the first time in many years to compete on price.  There is no need for NCCI to determine this rate for the whole state.”

NCCI’s proposed rate increase does not include an estimated $1 billion in unfunded liabilities due to the retroactive nature of the court decisions.  American International Group recognized that impact even before NCCI recommended the rate hike and boosted workers’ comp reserves by $109 million because of the Castellanos decision.

Alexander and Miami claimants’ attorney Mark Touby, who represented Marvin Castellanos, said the 60% decrease in rates over the past 13 years allowed insurers to pocket $1.8 billion in excess profits through reduced claims.

“Back in 2003, we heard the same type of crisis cry,” Touby said.  “The sky is not falling.  It will not fall.  Insurers made $1.8 billion in excess profits.  Unfunded liabilities are already funded.  It was a profit that should have been appropriately provided as benefits.”  

Touby is the lawyer who challenged the state’s attorny fee schedule before the Florida Supreme Court after he gained $822.70 of medical benefits for a Next Door Co, employee who was assaulted by a co-worker.  Under the state’s fee schedule, Touby was awarded $164.54 – the equivalent of $1.53 an hour.

The Supreme Court raised his fee to nearly $38,000 for working the Castellanos case.

“Judges are the safeguard against excessive and unreasonable fees,” Touby said.  “The Castellanos case will provide stability.  The problem here is the big ask for a rate increase. Employers did nothing wrong.  Carriers wrongfully denied benefits.  They (Next Door’s insurer Amerisure) spent over $10,000 of their own attorney fees to deny Mr. Castellanos $800 in benefits.  Bad decisions should not be put back into the rates.”

The Florida Chamber of Commerce, Walmart’s vice president of global risk management, the Greater Pensacola Chamber of Commerce, the Florida Roofing and Sheet Metal Association, the Marine Industries Association of South Florida, the National Federation of Independent Businesses and Manufacturers Association of Florida all urged the Office of Insurance Regulation to be circumspect before approving any rate increase.

Claimants’ attorneys Richardo Morales, Christopher Smith and Richard Chait all testified that NCCI had grossly exaggerated the impacts of the high court rulings.

Rich Remplin, Florida AFL-CIO legislative and political director, said NCCI’s rate filing is a “political strategy” designed to set up the Legislature’s biggest battle over next year – further workers’ comp reforms.

“This is a political ploy.  Rates have to be raised so that when the Legislature comes back, the insurance lobby can go to well-meaning legislators, stick a gun to their heads and say we have a premium crisis, companies are going to leave the state,” Templin said. “Don’t get sucked into that process.”

Former Florida Lt. Gov. Jeff Kottkamp, representing the Boys & Girls Clubs, urged regulators to temper any rate increase “realizing almost certainly that the Legislature will address this.” He said fewer children, many of whom live in poverty, will served by his nonprofit if rates are raised nearly 20%.

“This is designed to be a system of shared sacrifice,” Kottkamp said.  “What has been the history of profits for carriers? That has to be looked at in the overall scheme of things.”

Public comments will be accepted until the close of business Tuesday, Aug. 23, and should be emailed to [email protected] with “NCCI” in the subject line. 

https://www.workcompcentral.com/news/story/id/481693f1f5708fcda6c344e77ca78f01fd31dc56

Reprinted courtesy of WorkCompCentral.