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A Workers' Compensation"State Fund" Is a BAD IDEA!!

March 22, 2004

Last year the legislature passed SB50A, a comprehensive workers’ compensation reform package. As a result of that legislation, workers’ compensation rates have already seen a 14% rate reduction, and industry experts predict this decreasing trend will continue as long as the law is left alone during this session. However, one part of last year’s bill created a new subplan in the Joint Underwriting Association, which is Florida’s insurer of last resort. If a company is rejected by at least two insurance carriers, and has less than 15 employees, and a low experience modification factor, coverage can be purchased through this subplan. The problem this subplan is facing, though, is that the rates are not actuarially sound and are capped at only 25% above the voluntary market. Since that subplan’s creation, that subplan has encountered a deficit currently projected at $6 million.

Because of the attention placed on this JUA subplan and the problems it currently faces, many anti-business forces are trying to persuade legislators that thousands of employers are unable to get workers’ compensation coverage and that a state-subsidized insurance fund needs to be established. AIF opposes such a legislative proposal because the crisis that law makers are being warned of, simply does not exist.

Currently, there are over 180,000 employers in Florida who have purchased workers’ compensation coverage from a private insurance company in the voluntary market. There are only about 2,200 employers who have coverage under this subplan D of the JUA, and only 4,200 employers in the entire JUA. Therefore, less than 2% of all Florida employers are unable to get coverage in the voluntary market. There is no crisis of availability of coverage. In 1993 when the JUA was created, there were over 48,000 employers forced to buy coverage in the residual market because carriers were not writing business in the state. At that time, there was a crisis and the legislature saw fit to implement the JUA to handle that situation. Today’s figures do not rise to that level.

If the state created its own workers compensation fund, the money to establish that fund would come from an assessment or tax paid by all employers in this state. The employers who are operating legitimately and purchasing coverage for themselves would be forced to also pay to provide coverage for other employers – many of which simply do not want to purchase coverage – and many of which are in competition with those who pay such assessments. Additionally, if such a fund were able to provide coverage at lower rates that were not actuarially sound, similar to what subplan D is currently experiencing, it would not take long for huge deficits to accumulate. This would result in additional assessments and taxes to Florida’s employers. It would also create unfair competition in the workers’ compensation insurance market that would drive many carriers out of the state – resulting in higher rates and larger deficits. The only way for the government to solve such a crisis would ultimately be to raise more taxes on Florida’s employers.

AIF opposes any legislation that creates a state subsidized workers compensation insurance fund as it will result in a market environment that stifles competition and will inevitably result in higher taxes on Florida’s employers that is detrimental to economic prosperity.