Hike sought for workers’ comp costs

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The higher costs stem from a court decision tossing out a portion of the state’s workers’ comp law. If approved by state regulators, the additional cost would apply to policies written or renewed after Nov. 1.

The increase is laid out in an analysis of the decision’s impact undertaken by the Pennsylvania Compensation Rating Bureau, an independent nonprofit in Philadelphia that helps set workers’ comp premiums in the commonwealth.

The bureau filed a request Tuesday with the Pennsylvania Department of Insurance seeking a 6.06 percent increase in what is known as the loss cost.

The loss cost is one of the ingredients in determining workers’ comp insurance premiums, said John Pedrick, vice president of actuarial services for the rating bureau.

Barring any adjustments by individual insurers, premiums should mostly increase by the same 6.06 percent.

The bureau’s request follows a state Supreme Court decision in July invalidating the use of so-called impairment rating evaluations, or IREs, which had allowed companies to cap costs for paying out wages lost due to worker injury. Established by law in 1996, the evaluations generally are used in the infrequent cases of people who can’t or won’t go back to work two years after their injuries.

The bureau typically files an annual rate request in the spring for policies taking effect April 1, but it decided after the court decision to file a rare interim request.

“We had to act as soon as we could when it was clear that loss costs were not adequate,” Pedrick said.

An increase of 6.06 percent is the highest since 1992, Pedrick said, noting that loss costs have largely been on the decline since then. In the late 1980s and early 1990s, before legislative reforms took effect, the loss cost had been rising at a double-digit pace. It jumped 24 percent in 1992.

The bureau’s filing applies only to costs going forward, Pedrick added. It does not reflect the possibility of past claims being reopened as a result of the court ruling, a possibility raised by attorneys who specialize in labor and employment law.

People may seek to reopen cases in which their benefits had been curtailed by the IRE process, the attorneys have said.

As a result, insurance carriers may seek additional increases if they estimate their costs will be even higher, said Cynthia Sklar, senior vice president of underwriting and risk management for Eastern Alliance Insurance Group, a workers’ comp insurer based in Lancaster.

“That’s where insurance companies may exercise underwriting discretion to adjust their premiums to cover expected increases in costs, and that will vary by insurer,” Sklar said.

The loss-cost increase reflects only higher costs for replacing wages lost due to worker injury. It does not account for any changes in medical costs as a result of the court ruling, Pedrick said. Those costs also could rise or fall depending on how workers, employers and insurers react.

A legislative fix could offset the looming increase. But given the uncertainty, Pedrck said the bureau wanted to give insurers time to plan for upcoming policies.

“The sooner carriers know, the better,” he said. 

If legislation does emerge, he added, the rating bureau will examine its impact on workers’ comp costs and act accordingly.