Four States, Four Workers’ Compensation Systems

Differences in the way workers’ compensation systems operate from state to state stem from the way individual states construct laws to protect both the rights and safety of people who work there and the ability of those who insure workers to maintain profitability. Following are brief overviews of the workers’ comp markets in the four states covered by Insurance Journal – Texas/South Central—Arkansas, Louisiana, Oklahoma and Texas.

Arkansas—a lot to brag about
Arkansas gets the bragging rights for having the lowest costs and the lowest combined ratio for 2002. Much of the credit for Arkansas’ success in the workers’ comp area is attributed to changes wrought by Act 796 of 1993. According to the Arkansas Insurance Department, without passage of the act there would be virtually no voluntary workers’ compensation market in the state today. Since its enactment, rates in both the voluntary market and the assigned risk plan have dropped dramatically. The department noted that the population of the assigned risk plan, which is administered by the National Coalition on Compensation Insurance (NCCI), declined from 1993 through 2001, and premium levels dropped from a record high of $150 million in 1993 to around $6.5 million in 2000.

Premium volume for the assigned risk plan increased in 2001 and 2002, rising to just over $20.5 million in 2002. And the state experienced rate increases in 2002 for both the voluntary market (1.8 percent) and the assigned risk plan (5.5 percent). The overall hardening of the insurance market, higher medical costs, higher reinsurance costs and the effects of terrorism are some of the factors cited for the rate increases.
Both NCCI and the AID expect the state’s workers’ comp market to remain strong.

Louisiana—stability but high loss costs
Louisiana enjoys a relatively stable workers’ compensation market, however, according to the Louisiana Department of Insurance Property and Casualty Division, despite declining claims frequency the state struggles with high loss costs. The increase in claims costs are attributed to rising medical and indemnity costs.

LDI sees the workers’ comp market as being in a good new/bad news situation. The bad news? Higher loss costs and a 1.3 percent rate increase in 2001. The good news? Declining claims frequency and the fact that higher loss costs are in part due to increased employee salaries.

In a January 2004 report for the Louisiana Workers’ Compensation State Advisory Forum, NCCI reported that Louisiana has experienced a decrease in calendar year combined ratio and an improvement in accident year combined ratio. In addition to increased medical severity, the state is seeing higher than average permanent partial disability costs. Louisiana also has higher than average attorney involvement in claims cases, according to NCCI.

With $210,681,965 in direct written premium for 2002, Louis-iana Workers’ Compensation Corporation (LWCC) held a 34 percent market share. LWCC is a private, nonprofit, mutual company created in the early 1990s to stabilize Louisiana’s shaky workers’ comp system.

Oklahoma—a strong state fund
CompSource Oklahoma dominates the Oklahoma’s workers’ comp market. According to company sources, CompSource recorded $182,217,935 in direct written premium for 2002, has over 28,000 policyholders and commands a market share of about 40 percent. A spokesman for the Oklahoma Insurance Department noted that CompSource was conceived as a provider of last resort but there is no state mandate that an insured must be turned down by other carriers in order to obtain a policy from CompSource. Established as a nonprofit, the company insures many of the state’s smaller accounts that may be unattractive to private carriers. It also provides workers’ comp coverage for state government. The company reported a surplus approximately $162 million as of Dec. 31, 2002.

Recent changes to state law allowed CompSource to begin a program of paying commissions to agents, which are based on a sliding scale up to 8 percent. Loss ratios are one factor in determining commission rates.

The Oklahoma House of Represent-atives recently passed House Bill 2619, intended to help combat workers’ comp fraud, discourage “dueling doctors” and encourage resolution of disputes through negotiation rather than litigation, among other things. The Senate is expected modify it further.

Texas—a crisis in the works?
With nearly $2.6 billion in direct premium written in 2002, Texas has by far the largest workers’ comp market of the four states. And it’s probably no surprise to people who keep track of these things that Texas has one the highest costs per claim of any state in the country. According to the Workers Compensation Research Institute (WCRI), between 2000 and 2001 workers’ comp costs per claim increased at double-digit rates for the third consecutive year in Texas. The WCRI noted that in a study of 12 states, the average cost per claim in Texas—$5,320—was found to be 68 percent higher than the median of the study states. The major cost drivers were growth in medical payments per claim, rising indemnity payments per claim and higher benefit delivery expenses per claim.
Last December Lt. Gov. David Dewhurst, citing a lack of cost controls as a major concern, said Texas is on the brink of a workers’ comp crisis and appointed a panel of legislators to look into the Texas system. The committee will be examining what other states are doing to keep costs down while providing quality care to injured employees.

In addition, the Texas Workers Compensation Commission (TWCC) is up for sunset review in 2004. Groups such as Fix TWCC, a coalition of patients, workers, physicians and businesses, see the sunset review process as an opportunity to make significant changes. The Sunset Commission will hear public testimony on May 18 and 19.