Langham: Comparing Funding Processes
Wednesday, February 21, 2018 | 232 | 0 | min read
There are different ways to fund workers' compensation systems. This post compares North Carolina's model to Florida's.
Depending on the funding model, adjustments might be necessary as inflation occurs. But, undoubtedly, adjustment is required in budget expenditures, as inflation will undoubtedly affect the expenses of these systems.
The Florida Office of Judges of Compensation Claims Annual Report 2017 ("AR") is now available on the internet. It is a very comprehensive set of data regarding the performance of the OJCC.
A critical conclusion of that report bears reiterating: No other judge in Florida is more accountable than a judge of compensation claims. No other judge in Florida is subject to the array of performance measures, such as those imposed by Chapter 440, Florida Statutes.
And the OJCC is funded 100% from non-tax revenue. The OJCC is funded by the assessments on insurance for workers' compensation. That was the subject of an earlier post, Financing Work Comp Regulation. And this assessment model is fairly common in American workers' compensation.
I was therefore a bit surprised by a recent notice regarding the method North Carolina uses to finance its workers' compensation system. In North Carolina, there is a charge imposed to settle a case, to process a report of a mediator or to intervene in a workers' compensation case. The provisions are in 04 NCAC 10E.0203 (North Carolina Administrative Code).
The fees in place since 2015 are as follows:
Processing a compromise settlement agreement ($400)
(1) four hundred dollars ($400.00) for the processing of a compromise settlement agreement to be paid 50% by the employee and 50 percent by the employer(s) or the employer's carrier(s). The employer(s) or the employer's carrier(s) shall pay such fee in full when submitting the agreement to the commission and, unless the parties agree otherwise, shall be entitled to a credit for the employee's 50% share of such fee against settlement proceeds.
Notice that the default in this regulation is for the employer/carrier to pay this fee, but to collect half of that charge back from the injured worker. Of course, any right can be waived, so perhaps these charges are or are not regularly recouped from the worker.
Processing a Report of Mediator
(2) two hundred dollars ($200.00) for the processing of a I.C. Form MSC5, Report of Mediator, to be paid 50% by the employee and 50% by the employer(s) or the employer's carrier(s). The employer(s) or the employer's carrier(s) shall pay such fee in full upon receipt of an invoice from the commission and, unless the parties agree otherwise, shall be reimbursed for the employee's share of such fees when the case is concluded from any compensation that may be determined to be due to the employee. The employer(s) or the employer's carrier(s) may withhold funds from any award for this purpose.
This is similarly paid by the employer/carrier at the same time that the mediator is paid. The process suggests that mediation in North Carolina is primarily or wholly performed by private mediators rather than state employed mediators. This is supported by the mediation section of the Industrial Commission's website, which provides a list of mediators that the commission might "appoint" and also the names of others that "are not eligible for appointment," but which the parties might select.
Processing an Intervenor's Request That Claim Be Assigned for Hearing (this appears to be a process by which a medical care provider can seek payment):
(3) a fee equal to the filing fee required to file of a civil action in the Superior Court division of the General Court of Justice for the processing of a Form 33I Intervenor's Request that Claim be Assigned for Hearing, to be paid by the intervenor.
The Florida OJCC budget in 2016-17 was $17.4 million (AR page 21). That equates to about $244 for each of the 70,365 petitions filed in 2017 (AR page 11).
In Florida, there were 25,983 settlements in 2016-17 (AR page 21). If each of these had generated the $400 charged in North Carolina, that would have yielded $10.4 million.
In Florida, there were 16,079 mediations held in 2016-17 (AR page 22). If each of these had generated the $200 charged in North Carolina, that would have yielded $3.2 million.
According to the 2016 Florida Division of Workers' Compensation report of Results and Accomplishments (the latest data available), 5,526 petitions were submitted by medical care providers or facilities (2016 R&A, page 7). The charge in Florida for filing in the court of general jurisdiction (Florida Circuit Courts) is likely $400(AR page 19). Thus, if each such petition filed with the Florida Division had yielded $400, that would have generated $2.2 million.
The total revenue from the fees charged in North Carolina, applied to Florida volumes, would total about $16 million, not quite 91% of the Florida OJCC budget. And that does not account for the $29 million budget of the Florida Division of Workers' Compensation.
What is intriguing is the structure. In most systems, assessments fund the cost of regulatory agencies (costs shared based upon market share). Thus, in those systems, one participant (employer or carrier) paying a percentage assessment might pay more than its share of the overall cost.
However in the North Carolina model, the cost is not upfront but "pay as you go," with the employer/carrier paying their share based upon how much or how little they engage in certain behavior (settlement when chosen, mediation being mandatory when a claim is contested).
WorkCompCentral reported recently that the commission has proposed changes to its fee structure. This would increase the fee associated with a compromise settlement agreement from $400 to $430, an increase of about 7.5%. This is logical in the framework of inflation and the changes in cost.
As time passes, it is not uncommon for costs to increase for rent, salaries, etc. In a model like Florida's, those increases in system cost are perhaps more readily accounted for because the same inflation affects the premiums upon which assessments are calculated.
In a system like Florida's, as general cost of living increases, it is likely that insurance premiums increase somewhat in parallel. Thus, there is no need to address the inflationary effect periodically as North Carolina, and any fee-based financing program, would. The parallel structure of assessment would naturally account for those changes in many instances, though adjustments to the assessment rate might be warranted periodically.
However, the expense of operating this system does not have a parallel that provides adjustment without action. The budget of this office is legislatively set. And over time inflation can have significant effects. This was discussed in Judicial Pay several years ago. And the inflation effect is being seen in other expense elements as well. The cost of real estate, and thus the 17 district offices throughout Florida, is increasing.
For the last 10 years, the OJCC, and to some extent the landlords, has absorbed rent expense. Landlords were more flexible as the market sought tenants, but the recent indicators are that property markets are no longer soft. As a result, the real estate expenses of agencies like the OJCC will increase in coming years.
Some of that will be apparent in the 2019 budget year, but the full impact will take years to become obvious, as much of the increase will be noted only as long-term leases expire and require renewal negotiations or office relocation.
The expense elements of operating this office are significant. Though we strive to continue our accomplishments without significant budget increases, the inflationary effects on salary, real estate and other expenses will eventually necessitate increases in the Florida OJCC budget. Fortunately, the assessment system used to fund these expenses is already in place and is adjusting for inflation to accommodate needed expenditures.
David Langham is deputy chief judge of the Florida Office of Judges of Compensation Claims. This column is reprinted, with his permission, from his Florida Workers' Comp Adjudication blog.