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Big Rate Increases Ahead?

The Department of Labor and Industries is currently vetting various proposals that would allow it to increase its Contingency Reserve over a five to ten-year period.  The purpose of the Contingency Reserve is to maintain the "actuarial solvency" of the accident and medical aid funds.  It goes without saying that the agency has taken a hit financially due to current economic conditions. The Department has reported that its investment income has decreased significantly.  Yields on investments have historically resulted in significantly subsidized rates.  Without those returns, currently, the Department is looking for ways to maintain solvency of the system. For State Fund insured employers L&I is proposing a rate surcharge.  For self-insured employers the primary impact will be felt with a reduction in the pension discount rate resulting in higher pension costs and second injury fund assessments.

At a July 20, 2012 WCAC special meeting, the Department proposed a range of potential approaches to deal with the Contingency Reserve Fund issue.  Scenarios proposed included five and ten year plans to build the reserve.  Depending on the number of years in a reserve building plan, the targeted increase in the Contingency Reserve and how the costs of building that reserve are assessed over the five or ten-year period, proposed initial surcharges for 2013 range from a 7.8% to a 28.6% surcharge on top of book rates. In subsequent years, rate surcharges range from 3.8% to 17.5% per year depending on which plan is selected to rebuild the reserves.

Keep in mind that these surcharges will be on top ordinary indicated rate increases.  In addition, for State Fund employers, individual firm experience ratings will still apply as well. 

We will keep you posted as the Department's targeted reserve amount and proposed surcharge plan firms up.



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