Topic:
WORKERS' COMPENSATION;
Location:
WORKERS' COMPENSATION;

OLR Research Report


August 30, 2004

 

2004-R-0636

WORKERS' COMPENSATION INSURANCE RATES FOR CT AND NEIGHBORING STATES

By: John Moran, Associate Analyst

You asked for (1) a comparison of the workers' compensation (WC) insurance premium rates paid by employers in Connecticut with those paid in neighboring states and (2) an overview of the Connecticut WC system.

SUMMARY

Due to the differences in the way each state's WC insurance system works, it is difficult to compare the costs to employers from state to state. First, WC insurance premiums vary considerably depending on the occupation of the worker being insured and the likelihood of its leading to a work-related injury. Second, some states strictly regulate what employers can be charged for WC insurance coverage, while Connecticut (and others) allows a competitive marketplace where carriers have some flexibility in setting rates within parameters set by the state Insurance Department. Third, a comparison of rates does not tell the entire story because states have different levels of WC benefits, have different wage levels (since premiums are based on payroll), and different economies with different proportions of each type of job.

This report compares certain specific occupations and the premium ranges approved in Connecticut and several nearby states (Rhode Island, Vermont, and New Hampshire). Several other states each have their own independent WC insurance rating agencies that set the premium rates, and we will compare those actual rates (not ranges) for the same occupations.

The state's Workers Compensation Act, first passed in 1913, created a no-fault insurance system that compensates a worker for work-related injuries or illness and prohibits him from suing the employer over the injury (except in certain extreme cases). Employers must provide WC insurance coverage for their employees (there are some exceptions such as for independent contractors, casual workers, and a few others). The law also created a quasi-judicial administrative body, the Workers' Compensation Commission, to review and adjudicate claims and set policy under the framework of the act (Chapter 568 of the General Statutes).

WC INSURANCE RATES CT AND OTHER STATES

WC Rating Agencies

WC insurance rates are developed by ratings agencies and then approved by a state's insurance department. Connecticut uses the National Council on Compensation Insurance (NCCI), which 43 states use. NCCI gathers and analyzes data related to WC in order to propose the “loss cost” figures for every job classification that is insured through WC. The loss cost means the cost paid out for workers' compensation claims for both medical expenses and salary replacement payments, and it does not include administrative cost or profits for the carrier. The loss cost figure for a more hazardous job will be higher than the loss cost for an office job or some other relatively low-risk occupation.

NCCI also proposes assigned risk policy rates, which include administrative costs and profits for policies covering businesses with high claims experience.

New York, New Jersey, and Massachusetts each use independent agencies that are either affiliated with that state's insurance department or established as a separate compensation-rating agency. Whether a state uses NCCI or its own independent rating agency, the proposed rates or loss cost figures must be approved by the state's insurance department.

Making Rates in Connecticut

In Connecticut, NCCI proposes loss cost figures and assigned risk policy rates. In this system, once the loss cost figures are approved for each of more than 600 job classifications, individual insurance companies submit their premium rates to the Insurance Department for approval. (These rates are usually expressed as a multiple of the loss cost figure, for example the multiplier may be 1.5 of the loss cost. This means the premium is one and a half times the loss cost.)

Because each insurance carrier gets approved with different rates and carriers often specialize in one area of WC insurance (construction or even a subcategory of construction), the Insurance Department does not calculate an average WC insurance rate for individual job classifications. Tom Taggart, an examiner at the Insurance Department, estimates there are approximately 200 sets of WC insurance rates in Connecticut. This makes it difficult to determine the average WC insurance cost for any particular classification.

Connecticut and Other States

Since there are so many job classifications, we selected four specific jobs and compared the lost cost figures and assigned risk policy rates for them in four states that all have NCCI prepare this data. Table 1, below, shows the comparison expressed as rates per $100 of payroll.

Almost all insurance carriers in Connecticut offer premiums somewhere between the loss cost and the assigned risk rate, according to Insurance Department and industry officials. For example, Connecticut has the lowest loss cost and assigned risk policy rate for clerical workers, but it has the highest loss cost and assigned risk rates for carpenters. It appears to be in the middle range for the other two categories shown.

Table 1: WC Insurance Loss Cost and Assigned Risk Policy Rates Per $100 of Payroll

State

Clerical

Excavation

(construction site preparation)

Pharmaceutical/

Surgical Goods

Manufacturing

Carpenters

(1 or 2 family dwellings)

 

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

CT

$0.23

.41

$6.21

$11.18

$2.55

$4.60

$12.76

$22.99

NH

.33

.50

11.25

17.16

2.24

3.42

12.51

19.08

-Continued-

State

Clerical

Excavation

(construction site preparation)

Pharmaceutical/

Surgical Goods

Manufacturing

Carpenters

(1 or 2 family dwellings)

 

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

Loss Cost

Assigned Risk

RI

.30

NA*

6.47

NA*

2.50

NA*

10.10

NA*

VT

.31

.56

6.03

10.95

3.39

6.16

10.78

19.58

Note: “Loss cost” means the cost to pay out for workers' compensation claims and does not include administrative cost or profits for the carrier. Assigned risk policies are the rates that insurers of last resort can charge customers with high claims histories.

All figures effective 2004, except RI figures in effect since 1998.

*NCCI does not supply RI with assigned risk policy rates. RI designates a single carrier for assigned risk policies.

Source: NCCI, Inc.

“Prior Approval” States

Massachusetts, New York, and New Jersey each use independent agencies that are either affiliated with that state's insurance department or established as a separate compensation-rating agency. These rating agencies develop the WC premiums that insurance carriers can charge employers. These states are known as “prior approval” states because insurers can only charge what the rating agency and the insurance department have approved unless they file for and receive approval for a rate variation.

Monte Almer, president of the New York Compensation Insurance Rating Board (http://www.nycirb.org/), said rate deviation filings typically seek rate decreases in the 5% to 10% range. He said the insurance company must show that its practices, financial situation, and customers' claims history support such a decrease. Unless a carrier has permission for a rate deviation, it must charge the rates established by the rating board, he said.

Below Table 2 shows the rates established by the rating boards in New York, Massachusetts, and New Jersey and that insurance carriers charge employers. These are the standard WC insurance rates for the named job classes.

Table 2: WC Insurance Premium Rates Per $100 of Payroll

State

Clerical

Excavation

(site preparation)

Pharmaceutical/

Surgical Goods

Manufacturing

Carpenters

(1 or 2 family dwellings)

MA

$0.17

$6.49

$1.30

$9.93

NJ

.26

7.74

1.95

11.76

NY

.35

10.02

5.03

13.69

         

Source: WC insurance rating boards of MA, NJ, and NY.

OVERVIEW OF CONNECTICUT WC SYSTEM

Introduction

The Connecticut Workers' Compensation Act (Chapter 568 of the General Statutes) was passed in 1913. It requires employers to compensate their employees who suffer work-related injuries or occupational diseases, regardless of who is at fault. In return for receiving compensation on a no-fault basis, employees are prohibited (except in very limited circumstances) from suing their employers or fellow employees for damages arising from work-related injuries or accidents.

Major Legislation

Workers' compensation benefits and the administration of the workers' compensation system were extensively revised in 1991 (PA 91-339) and in 1993 (PA 93-228). (A summary of the changes in the law between 1991 and 1995 may be found in OLR report 95-R-1572, attached). The 1993 act made numerous changes that reduced the cost to employers of providing WC and reduced certain employee benefit levels. In 1997, the legislature restored cost of living adjustments to those who were injured after July 1, 1993 (when PA 93-228 became law) and were (1) permanently disabled or deemed totally disabled for a period of five years or more, or (2) surviving dependents of a claimant. In recent years, there have not been any major changes to Connecticut WC law.

Employee Eligibility

In order to receive workers' compensation benefits, an injured claimant must be a covered employee in an employer-employee relationship. The law defines an employee as anyone who works under any contract of service or apprenticeship with an employer (there are some exceptions such as for independent contractors, casual workers, domestic service workers employed in private homes less than 26 hours a week, and a few others). The law explicitly includes certain people, such as volunteer firefighters and members of the General Assembly. It also allows sole proprietors and business partners to be covered voluntarily.

Covered Injuries

An employee is entitled to compensation for any personal injury that “arises out of and in the course of his employment.” The meaning of this phrase has been interpreted and reinterpreted endlessly in 90 years of cases and is now deemed to cover a wide range of conditions, including psychological and emotional injuries. (Mental and emotional injuries that occur after June 30, 1993 are compensable only if they stem from a physical injury.) In general, the law covers injuries that occur within the period of employment, at a place where the employee may reasonably be, and while the employee is reasonably fulfilling his employment duties or doing something incidental to his employment.

Employees are not entitled to compensation for personal injuries caused by their own willful and serious misconduct or by their own intoxication.

Benefits

Workers' compensation benefits fall into two categories: (1) payments for medical expenses and treatment of a work-related injury or disease, and (2) benefits that compensate an injured employee for lost earnings due to temporary disability and for any permanent disability. The latter benefits are called wage-loss and indemnity benefits.

The level and duration of wage-loss and indemnity benefits varies depending on the degree of disability (total or partial) and whether the disability is temporary or permanent. Total disability benefits are paid for as long the total disability lasts.

Workers' Compensation Commission

The workers' compensation law is administered by 16 workers' compensation commissioners, including one who serves as commission chairman. Commissioners are appointed by the governor and confirmed by the General Assembly. Each commissioner serves a five-year term. The chairman serves as chairman at the governor's pleasure. The commissioners are responsible for adjudicating claims and insuring that injured workers receive the entitled medical, wage, and indemnity benefits in a fair and timely way.

The commission chairman, with the help of a nine-member Workers' Compensation Advisory Board made up of employer and employee representatives, is responsible for adopting policies, rules, and procedures needed to carry out the law. The chairman manages the claims processing and central and district office support operations. The chairman also prepares the Workers' Compensation Commission's budget and various statistical reports with the assistance of a central office staff.

Establishing a Claim

Workers' compensation claims must be filed within one year of the date of injury or within three years of the first manifestation of an occupational disease. Claims are established by filing written notice with the employer and a workers' compensation commissioner in the district where the injury occurred. A legal claim may also be established without written notice if, following an injury, the employer either provided medical care or the employer and employee reach a voluntary agreement regarding payment of benefits. Many claims are established and paid under voluntary agreements without the worker filing a formal written notice of claim. A voluntary agreement must be approved by the workers' compensation commissioner.

Contested Claims

An employer may contest its liability to pay a workers' compensation claim by filing a disclaimer of liability with the workers' compensation commissioner. The employer must file its disclaimer or begin paying the claim without prejudice within 28 days of receiving notice of the claim. If he does not do either within the 28 days time, the employer's liability for the injury or disease is presumed and it forfeits its right to contest compensability.

Disputes over compensability or degree of disability are resolved through informal hearings with the commissioner. The commissioners encourage parties to reach settlements and sign voluntary agreements. If settlement is not possible, parties may request a quasi-judicial, formal hearing. Commissioners' decisions may be appealed to the Compensation Review Board. The board's decisions may be appealed in court.

JM:ts