Workers' Compensation Premium Discounts for Drug-Free Workplace Plans

You asked whether other states have established reductions in workers' compensation insurance premiums when employers institute drug-free workplace policies.

Internet and WestLaw computer searches show that seven states have laws requiring insurers to give workers' compensation premium reductions or credits to employers with drug-free workplace programs. The states are Alabama, Florida, Georgia, South Carolina, Tennessee, Virginia, and Washington. In addition, insurance regulators in 14 states, including Connecticut, have approved a 5% drug-free workplace credit plan filed by the Great American Insurance Company, without specific legislation. The 14 states that have approved the Great American plan are Connecticut, Idaho, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New York, North Carolina, Oregon, Pennsylvania, Utah, and Virginia. Finally, the Ohio Bureau of Workers' Compensation has also implemented a drug-free workplace plan, again without specific legislation, that requires premium discounts ranging from 6% to 20% depending on the programs employers institute. The discounts apply only to employers who buy coverage from the state workers' compensation fund. In Ohio and Washington, workers' compensation coverage is only available from state-run workers' compensation funds, not private insurers.

We enclose a summary sheet provided by the National Council on Compensation Insurance on the discount programs (Attachment 1). Fuller summaries appear below.

Alabama law requires employers who institute a drug-free workplace program certified by the Department of Industrial Relations to receive a 5% annual premium discount on their workers' compensation insurance. The law applies to all insurance policies issued or renewed in Alabama on or after July 1, 1996.

In order to be certified for the discount, the employer's program must contain all of the following elements:

1. A written drug-free workplace policy statement.

2. Mandatory substance-abuse testing (a) for all prospective employees once they are offered employment, (b) when the employer has a reasonable suspicion that an employee has used drugs in violation of the employer's written policy, (c) as a follow-up whenever the employee has been ordered into a rehabilitation or employee assistance program based on past drug use, (d) as part of routine fitness-for-duty exams or physicals that are part of an employer's established policy, and (e) when an employee causes or is involved in any lost-time work accident.

3. An employee assistance program.

4. Semi-annual employee education, lasting at least one-hour, on substance abuse and its effects on the workplace.

5. Two hours of training for all supervisors on how to recognize and document employee substance abuse and refer substance abusing employees to proper treatment.

The law also specifies criteria for the employer's policy; requirements for a valid test, including a second test to verify the results of the first; criteria for employee assistance and education programs; and record keeping and confidentiality requirements.

The premium discount must be applied on a pro rata basis as soon as the employer receives certification. The discount must continue for up to four years but the employer must receive a new certification in each year. After four years, any premium discount must be based on the employer's own experience rating or, if the employer is not experience-rated, set by the insurance commissioner (Ala. Code Ann.§ 25-5-331 to 25-5-340).

Florida law requires the state Insurance Department to approve rate plans for workers' compensation insurance that give “specific identifiable consideration” in rates for employers that implement drug-free workplace programs. Programs must meet requirements established by the Labor Department's Division of Workers' Compensation. The law requires the rate plans to take effect January 1, 1994, be actuarially sound, and state the savings that are expected to result from the programs (Fla. Stats. Ann., § .627.0915).

Georgia's drug-free workplace policy law is virtually identical to Alabama's. But the required premium discount is at least 7.5% and it continues for up to eight years before the discount is changed to one based on each company's experience rating or to one specified by the state insurance commissioner for companies that are not experience-rated (Ga.Code Ann. § § 33-9-40.2 and 34-9-410 to 421).

South Carolina requires a premium reduction of at least 5% on any workers' compensation policy issued or renewed in the state on and after October 1, 1997, if the employer institutes a substance abuse program certified by the director of the Department of Insurance. Program requirements must be set out in regulations to be adopted by the director. But the law requires a certified drug-testing program to include provisions for testing a random sample of anyone who receives wages or compensation in any form from the employer. It also requires a second test administered within 30 minutes of the first, that the employer provide written notice of a positive test result to an employee within 24 hours after the employer receives the results, and that the employer keep test records for up to one year (1997 Act 92).

Tennessee's law is very similar to Florida's. It requires the Department of Commerce and Insurance to approve insurance rate plans that give employers credits for implementing drug-free workplace programs. The credit must be at least 5% unless the insurance commissioner determines that such a percentage is actuarially unsound. The credit plans take effect January 1, 1997.

Although Tennessee has a drug-free workplace law almost exactly like Alabama's and Georgia's, its provisions are not directly tied to the premium reduction law. Instead, the premium reduction law requires that Labor Department's Workers' Compensation Division to adopt rules for qualified programs (Tenn. Code Ann. § 50-6-418)

Virginia's law is very brief. It requires workers' compensation insurers to give premium discounts of up to 5% for not more than four years to any employer who institutes a drug-free workplace policy that satisfies the insurance company's criteria. The law was enacted during the 1997 of the Virginia legislature and went into effect on July 1, 1997 (Chap. 410, HB 2673, 1997 session, amending Va. Code, § 65.2-813.2).

Washington's law concerning the drug-free workplace program is similar to those of Alabama's and Georgia's. Among the major differences are provisions limiting an employer's right to dismiss an employee because of a first-time positive test result and limiting post-accident drug testing. The Washington law expires on January 1, 2001.

Washington's premium discount is 5% and total discounts are limited to $5 million per fiscal year. Washington does not permit private insurers to sell workers' compensation insurance in the state. All coverage is provided by a state-run workers' compensation fund (Rev. Code of Wash. Ann., § § 49.82.010-901).

Ohio's Bureau of Workers' Compensation has established a variable premium discount program for employers with qualifying drug-free workplace programs. In Ohio, employers can only buy coverage from the state-run Ohio workers' compensation fund. The discounts are 6%, 12%, or 20%, depending on the extent of the employer's program. In order to qualify for any discount, an employer's program must have at least a written policy, employee education, supervisor training, drug and alcohol testing, and an employee assistance program. To qualify for larger discounts, employer drug programs must be more sophisticated and the employer must also have a broader safety program. We enclose a fact sheet on the Ohio program that describes the required components for each discount level (Attachment 2).

At least one insurance company, Great American Insurance, offers a 5% premium discount on workers' compensation coverage for employers in 14 states, if the employer adopts a drug-free workplace program that meets the company's requirements. Like the statutory programs already described, the Great American program requires a written employer policy, employee education, supervisor training, an employee assistance program, and drug and alcohol testing. Attachment 3 gives an overview of the Great American program.

As of September 26, 1997, Great American's drug-free workplace discount program was available in: Connecticut, Idaho, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, New York, North Carolina, Oregon, Pennsylvania, Utah, and Virginia.