A decision last week from a Cuyahoga County, Ohio judge could mean more than 270,000 Ohio employers are due restitution for overpayment of workers' compensation premiums to the Ohio Bureau of Workers Compensation. The class action suit representing mostly smaller employers in the state had sought $1.3 Billion dollars in premium returns and interest, although the judge has told them to sharpen their pencils and recalculate that request, ruling they are not entitled to interest payments in their claim.

Still, it is going to be a fairly hefty sum. The BWC, Ohio’s monopolistic carrier, has vowed to appeal and denies any wrongdoing in the matter.

At the heart of the issue is the use of deeply discounted group insurance plans. Plaintiffs in the case alleged that such plans were given steep discounts, sometimes as high as 90%, while comparable businesses with similar claim activity not in a group paid significantly higher premiums. Attorneys for the plaintiffs also alleged those plans had a tendency to expel any businesses that had claim activity, so that they did not endanger the premium discounts enjoyed by the group.

The suit was originally filed in 2007, and the judge in the matter, Judge Richard McMonagle, ordered BWC to change the way it offered those discounts in 2009. Apparently the highest discount rate that may now be earned is 53%. The suit and pending settlement order are based on the years 2001 thru 2008.

On the surface, I am struck that this case represents many of the tendencies and challenges of any group insurance plan in the private sector. Like minded entities no doubt wish to combine economic forces to leverage the best deal possible for their members. Likewise, any adverse activity, like a preponderance of claims, will affect the entire group, and tend to make certain offenders unwelcome in the future. Insurance economics 101.

What I was not clear on personally are the benefits of structuring group plans under a monopolistic system. My original belief was, that under such a system benefits would be fleeting at best, and that, in the absence of competition, past experience and claim activity would rule the day for premium determination. Yet, we are led to believe that is not the case here. We even know, from one comparison presented in court, that actual claim history might not have had much influence over the process at all. That example cited two carpentry firms of similar size. Neither had any claims activity, but “the one that was not part of a group paid $48,050 a year for insurance, while the other firm with a group rate paid $4,805.”

Yowza. Get thee to a group plan, why woulds’t thou be a payer of outrageous premiums…….

To get a better understanding of why a monopolistic system would use a group plan arrangement in the first place, I turned to Bill Teets, Director of Communications at Ohio Bureau of Workers Compensation. He essentially told me that group plans allow the state to get the same benefits seen in competitive environments, saying that if you “Lump businesses together with good claims history”, you can “reduce their premiums accordingly.” He indicated that most of what the BWC does in terms of premium discounts revolves around safety, telling me that Ohio law generally requires some safety component on what they do. Teets says that by offering discounts to groups, they are encouraging and rewarding safe behaviors.

But the far larger point is that it is primarily related to economic development. Teets says that BWC does “not want a perception of high WC rates to taint Ohio’s business climate. Keeping rates low, and just as importantly stable, helps Ohio’s businesses grow.”

That, on the surface, makes sense to me. While it is true that Ohio operates a monopolistic system, they do not operate in a regional vacuum. They still need to compete with neighboring states and other jurisdictions with programs that offer competitive rates rewarding positive results. Workers comp is a key component that can help make a business decide to locate its facilities in your state; or to pack up and move elsewhere.

Anyone could figure that out. Even people in California – at least all those looking at this time to move to Arizona or Nevada.

But what of the example discussed above, where similar businesses have such a broad variance in premium? Teets could not speak to the specific examples cited, but he did say that with the experience modifier you will “never find an apples to apples comparison.“ He confirmed that BWC does not control who goes into any particular group. Approval for those belongs to the sponsoring organization, which are ultimately responsible for defining the parameters and membership. A group that maintains certain standards allows the BWC to provide the discounts available with a relative confidence in associated risk (my words, not his).

Turns out my advice to “Get thee to a group plan” was pretty darn salient. Even with the reduced discounts ordered by the court, it would seem the place that responsible employers would want to be.

Who knew? It really is Insurance Economics 101.

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