With Faulty Rate Hike, Insurers Game the System

Pennsylvania’s independent nonprofit workers’ compensation insurance rating bureau filed documents this week stating that premiums across the state were erroneously raised earlier this year after a major insurance carrier “materially overstated” its reported losses from payouts to injured workers.

The insurer has not been named as the Pennsylvania Insurance Commission has begun an ongoing investigation into the “mistake.”  But the consequences have rippled widely.  Injured workers’ access to workers’ compensation benefits has been negatively impacted and employers paid an estimated $260 million more in premiums than necessary. Meanwhile, the General Assembly in Harrisburg took advantage of the circumstances, forcing passage of Republican-led legislation intended to override a 2017 decision by the Supreme Court of Pennsylvania that found a relevant provision of the Workers’ Compensation Act to be unconstitutional.

Profiting from Workers, Employers Alike

The incident shows that insurers will exploit the system to profit on both sides of the workers’ compensation equation. Not only do they go to great lengths to avoid paying benefits to injured workers. They also collect higher premiums from employers by any means necessary, deceiving state regulators and improperly influencing legislators.

The Pennsylvania Compensation Rating Bureau (PCRB), the independent non-profit organization that collects data from insurers statewide to help set workers’ compensation insurance rates, filed for an interim 10.02 percent reduction from previous “lost cost filings,” which are used to determine annual premiums.  The new filing by the Bureau seeks to correct the statistics from 2017 that triggered an across-the-board premium increase in 2018, overcharging employers by millions of dollars.

Pond Lehocky Stern Giordano managing partner Sam Pond responds: “The insurance companies are picking the pockets of employers who follow the law and pay their insurance premiums, not just those of injured workers who simply want to have a job, work, and be protected if they get injured.”

The episode demonstrates how subtly insurers can manipulate lawmakers and regulators. In this case, insurance companies parlayed the erroneous loss figures reported to an independent entity into a substantial rate hike. Since the PCRB is a private organization, all of this was done with little regulatory oversight.

The Protz Fix Windfall

Simultaneously with the above corrective filing, the PCRB also filed a less controversial filing providing for expected premium reductions stemming from the state legislature’s recent enactment of Act 111. That law seeks to restore the provisions of the Pennsylvania Workers’ Compensation Act that govern Impairment Ratings Evaluations (IREs). IREs are medical examinations used to determine the level of ongoing impairment suffered by an injured worker after two years of total disability benefits have elapsed. They are used by insurers to change injured workers’ benefit status from total, which has no time limitations, to partial, which means benefits can be ended after 500 weeks.

Last year, the Supreme Court of Pennsylvania struck down the IRE provisions in Protz v. WCAB (Derry Area School District).  The Court held that the provisions unconstitutionally delegated legislative authority to the American Medical Association (AMA) by mandating that the evaluations be conducted in accordance with that organization’s impairment rating guidelines, which are updated every several years. The Court held that because the AMA operates without accountability to voters or administrative and legislative oversight, allowing it such extensive authority over the rights and eligibilities of the Commonwealth’s injured workers violated the state constitution. Since the Court’s June 2017 decision, IREs had been disallowed.

Act 111, signed by Gov. Tom Wolf in October, resurrects IREs by specifying that doctors conducting IREs must use the employer-friendly 6th edition—a change that will provide significant savings to insurers and, for the time being, cure the constitutional problem of delegating ongoing authority to the AMA. The PCRB attributed a 5.24 percent “loss cost” adjustment to the new law.

Incorporating the two loss cost reductions, the PRCA proposed a 14.74 percent rate decrease in workers’ compensation insurance rates based on the two loss cost filings.

Caution Needed

These recent filings by the PCRB show how favorable the outlook has become for insurers. Act 111 allows them to reinstate the IRE process with less worker-friendly guidelines. At the same time, their losses from payouts to workers were not as steep as previously reported and they wrongly received millions of dollars in premiums from compliant employers.

The events of this week further reveal that insurers’ actions need to be scrutinized. They are in the business of making profits, whether by denying injured workers’ legitimate claims or charging compliant employers higher premiums. They will manipulate the system to their advantage by any means necessary. Employers and employees will need to act accordingly and be more vigilant to protect their interests.

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