Self-Insured Workers’ Compensation
by Frederic J. Buse, CPCU

Pending legislation in the final days of the session has the potential to adversely impact small businesses located throughout New York State. The New York State Workers Compensation Board (WCB) is encouraging passage of a bill that will impose the anticipated losses, liabilities and expenses from unrelated, defaulting self-insurance groups to healthy self insurance groups now operating in New York State.

The proposed legislation will significantly and adversely affect all members of responsibly administered group self-insurance trusts in New York State. In addition, the bill currently being negotiated between the Workers Compensation Board and the Governor’s office is far more than a funding bill. It contains detailed requirements for self insured groups’ operations, many of which are so strict; they could jeopardize the operations of the well-run groups and the great benefit that employers within groups are receiving.

Any funding must be done in a way that will not put unreasonable financial burdens on the remaining self insured groups. The answer is not to transfer the problem from the parties responsible for the deficits, to the tens of thousands of employers of the healthy self insurance groups that have always paid accurate rates for workers compensation coverage.

Group self-insurance provides an alternative means of coverage for tens of thousands of businesses in New York State. Any legislation must continue to make this alternative viable.

In January 2008, the WCB billed Self Insured Groups (SIG) and Individual Self Insured’s $66 million. This represented an increase of $46 million from the year prior. This increase was attributable to the need for funds to ensure payment of claims on closed trusts as well as the reallocation of the costs among Groups and Individuals resulting from reforms adopted in March 2007. These Trusts closures occurred in 2006 and 2007. Only recently has any amounts been billed to members of closed groups.

In total, 15 groups have closed. Of these, 11 were administered by two related entities, CRM and CRS. 80% of the deficit which the WCB is trying to collect is a result of the failure of these 11 groups. The majority of these groups became “underfunded” in a short period of time raising the question as to whether there was malfeasance or nonfeasance by the administrator, or a lack of regulatory oversight. Apparently, cash is very limited in these groups, and it is alleged these groups have insufficient funds to pay claims. Currently, the WCB is making efforts to collect this shortfall by assessing Group self insurers and individual Self Insurers. Active groups are questioning the statutory appropriateness of the assessment in court, the accuracy of the calculations, and the failure of the WCB to timely assess members of closed groups.

Trusts need to have predictability in expenses going forward. To date, there have been verbal assurances that the healthy groups being assessed would see relief from such assessments by the third quarter of 2008. The legislative solutions proposed to date to not lead to that conclusion, and in fact second quarter assessment bills request a higher annual assessment than the first quarter.

Assessing active Trusts for the failure of other Trusts is not appropriate or supported by statute. Trusts are groups of employers in like industries. These employers join together to pay their Workers Compensation costs. By law, these employers are jointly and severally liable to each other for all costs associated with the program whenever such costs occur and regardless of whether the employer is an active participant of the Trust. Members of Trusts participate with that understanding.

A member of one Trust should not be jointly and severally liable for another Trust. That is what the WCB have imposed with the recent assessments.