Sources of Revenue:

Special Fund

Legislation creates:

Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

This bill transfers all assets and liabilities of the WV Workers Compensation Commission to the following funds: Old Fund (Responsible for legacy claims with dates of injury prior to July 1, 2005.) Self Insured Guaranty Risk Fund Self Insured Security Pool Fund Uninsured Employer Fund Private Carrier Guaranty Fund Assigned Risk Fund Mutualization Fund New Fund (Employers Mutual) No net financial impact is anticipated due to the transfer of regulatory personnel to the Insurance Commissioner, Industrial Council or other state agencies. The transfer of Commission employees to the Employers Mutual will result in certain savings and costs to the State as a whole.

Fiscal Note Detail

Effect of Proposal	Fiscal Year
Effect of Proposal	2005 Increase/Decrease (use"-")	2006 Increase/Decrease (use"-")	Fiscal Year (Upon Full Implementation)
1. Estmated Total Cost	0	0	0
Personal Services	0	0	0
Current Expenses	0	0	0
Repairs and Alterations	0	0	0
Assets	0	0	0
Other	0	0	0
2. Estimated Total Revenues	0	0	0

Explanation of above estimates (including long-range effect):

Memorandum

Workers Compensation Overview Privatizing the risk and its administration while maintaining control over regulation, benefit levels and adjudication (i.e. judicial review over all decisions) PHASE 1 (2/1/05 01/01/06): Preparation for Mutual - Removal from all purchasing jurisdictions - Current Board of Managers stays in place until 12-31-05 - Remain in state benefit programs (such as PERS/PEIA) until 12-31-05 o If Mutual Fund not formed then WCC becomes a quasi-governmental entity on 7-1-06 - Establish Mutualization Fund of $35M to pay for costs of privatization o Purchase of up to 5 years of service o Sick leave/Vacation Leave o Software/hardware o Retraining costs of employees laid off ($2 million) o Other costs - Implementation of plan to resolve unfunded liability by 12-31-05 o Revenue stream of $230 to $250 million - Rate reduction for employers on 1-1-06 net amount of 15% - Arrange for reassignment of regulatory functions to Insurance Commission (effective 1/1/06) o Office of Inspector General (7-1-05) Fraud portion only À’ Current Inspector General is the initial appointment o OOJ À’ Chief ALJ becomes at-will appointment of Governor o Board of Review o Self-Insurance o Rate Making o Payment for administrative portion will come from: À’ 1-1-06 to 3-31-08 Mutual company will transfer, one-quarter in advance, the FY06 budgeted amount for the above functions À’ As of 7-1-08 Insurance Commissioner will set a surcharge amount equal to the administrative costs appropriated by the Legislature for the Insurance Commissioner to administer workers compensation insurance in West Virginia and will charge carriers on a monthly basis. - Creation of Old Fund, Uninsured Fund, Self-Insured Guaranty Fund, Self-Insured Security Pool Fund, Private Carrier Guaranty Fund and New Fund, to be funded as of 1/1/06: o Private Carrier Guaranty Fund (Insurance Commission) Used to cover liabilities of from bankrupt private carriers Private Carriers will be assessed o Old Fund - Minimum of $300 million maximum of $600 million plus bond proceeds not to exceed $1.25(B) Àƒ Used for liabilities prior to 01-01-06 Àƒ Administered by Mutual for seven years Àƒ Funds held at Department of Administration o Uninsured Fund - transfer of $5 million (Insurance Commission) Àƒ Used to pay for claims made by employees who work for companies who do not have coverage Àƒ Shortfall made-up from assessment on carriers o Self-Insured Guaranty Fund (Insurance Commission) Àƒ Approximately $1 million Àƒ Used to cover liabilities from bankrupt self-insured with injury dates after 7-1-04 and bankruptcies after 6-30-05 o Self-Insured Security Pool Fund (Insurance Commission) Àƒ $0 but transfer all self-insured security Àƒ Used to cover liabilities from bankrupt self-insured with injury dates prior to 7-1-04 and bankruptcies after 6-30-05 Àƒ All self-insured are to be fully secured by 6-30-06 Held by Mutual Fund: o New Fund remaining dollars approx. $450 to $500 million Àƒ All unpaid regular subscriber liabilities after 12-31-05 with injury dates after 7-1-05 Àƒ Will have liabilities of approximately $200 million - Creation of provisional board for mutual as of effective after passage o Develop process to mutualize WVWCC by 12-31-05 o Five Member Board Àƒ Labor Representative on Executive Committee of BOM Àƒ Business Representative on Executive Committee of BOM Àƒ Executive Director of Commission Àƒ Chairman of the Board of Managers Àƒ Executive Director of State Medical Association PHASE 2 (1/1/06 6/30/08): Establishment of Mutual and Discontinuance of State System - Creation of Employer Insurance Mutual of WV o Executive Director of WVWCC will be CEO of Mutual for first year of operation o Be sole provider of coverage in West Virginia until 7-1-08 Àƒ Allows for smooth transition of $650 million insurance industry Àƒ Privatizing the risk and its administration while maintaining control over regulation and adjudication (i.e. judicial review over all decisions) o Own New Fund and liabilities from 01-01-06 until 7-1-08 (then market opens) o Writes all State Agencies, Boards and Commission and Higher Education system coverage until 6-30-12, then it can be bid-out by the State o OP and EELF Fund novate (all assets and liabilities transfer) to company o Will administer State book of business until 6-30-12 o Administer Old Fund Àƒ 5% administrative fee from 1-1-06 to 6-30-10 Àƒ 4% administrative fee from 7-1-10 to 6-30-12 Àƒ Insurance Commissioner can bid-out after 6-30-12 - New Board for Employer Insurance Mutual of WV o 7 member Board voted in by rules established by provisional board Àƒ Done by 11-1-05 - Employees transferred from WVWCC to mutual with certain re-employment rights o Laid off within one year of creation have State preference rights o Paying up to $2 million for retraining to DOP o Certain benefit incentives to entice employees to go with mutual, such as purchase of certain PERS credit, sell/freeze sick leave - Transfer of liabilities with DOI 7-1-05 and thereafter to New Fund while all preexisting liabilities remain with Old Fund - Increase subrogation rights of all carriers - Tort protection for carriers to allow market to mature - Rates established as follows: o FY2007 Charge the actuarially determined base rates for said fiscal year. The base rates shall be calculated by the company and submitted for approval by the industrial council. o FY2008 Charge the actuarially determined base rates for said fiscal year. The base rates shall be calculated by the company and submitted for approval by the industrial council. o FY2009 No more than a 5% variance from the base rate o FY2010 No more than a 10% variance from the base rate o FY2011 and beyond Insurance Commission will set base rates and insurance providers will file and use rates unless disapproved PHASE 3 (7/1/08 and thereafter): Competition - Open market for competition with private insurance companies - Insurance Commissioner will regulate and monitor - Adverse Risk o Pool developed and administered by Insurance Commission o Rates charged will be actuarially sound o Any short falls will be charged back to private carriers

Person submitting Fiscal Note: Chris Howat
Email Address: chowat@wvwcc.org