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Ohio BWC gives employers $1B rebate

Legal News Reporter

Published: September 20, 2013

Ohio’s Bureau of Workers Compensation (BWC) has just completed a $1 billion cash rebate of premium overpayments to nearly a quarter-million Ohio employers.

If this sounds like it took a long time and room full of actuaries to accomplish, it did, said BWC spokesperson Bill Teets. The rebate was actually put together by hand in the BWC offices in Columbus, and went out in several waves.

“The rebate has been very well received by the business community,” said Teets. “It went smoothly.”

Even so, many of the recipients of these payments are also in the class of plaintiffs that recently won a lawsuit against BWC for almost exactly the same amount, and their spokespeople are not impressed. But more on that later.

The billion dollar rebate was approved by the BWC board of directors in May. Payments began in the end of June, with the final payments sent out July 15.

The largest rebate amount was $8 million, and the smallest $5, Teets said. The rebates were mailed as a one-time cash payment.

The amount any individual employer received represented 56 percent of the gross workers comp premium paid for the 2011 policy period. That period covered July 1, 2011 through June 30, 2012 for private employers and January 1, 2011 through December 31, 2011 for public employers.

Approximately 220,000 businesses were eligible for the rebate, although the total of checks that the bureau sent out was 180,000. “There are about 30,000 employers who have workers compensation who do not pay premiums,” or who did not pay premiums during the target period, said Teets. Employers who canceled coverage prior to April 1, 2013 were not eligible for the rebate.

The money came out of the approximately $9 billion cash surplus that BWC has been building for the last few years. Policy changes and personnel changes have created that surplus, according to Teets, since the bureau lost millions during the Tom Noe “Coingate” crisis in 2005-06.

“The bureau’s net assets have grown during the last few years,” said Teets. “Especially since 2010, there had been significant growth in the surplus, up until the time that the board made the decision about the rebate.”

The board has also made other decisions about disbursing more money out of the surplus—decisions that have not received the publicity that the rebate has received.

The board, said Teets, took a very close look at the bureau’s guidelines, and compared that against the amount of cash that had accumulated over the last few years.

“We were significantly north of the (cash on hand) guidelines that we had established,” said Teets. “As a nonprofit organization, we are not looking to make money.” The basic guidelines for the bureau are to keep between $4.5 and $6.5 billion cash on hand. A $9 billion surplus far exceeded those amounts.

The board started looking for, “ways to reduce our net assets,” Teets said.

The term “net assets” is fairly difficult to track accurately for the Ohio BWC, he said. Many claims are open-ended, many stretch back for years and many may stretch forward for years. A claim can suddenly end, and another claim can continue for an entire lifetime.

“Unlike other forms of insurance like property or casualty, our claims can remain open for decades,” he said. “We have to establish rate and liability numbers to paid out over long periods of time, so we tend not to have huge changes in rates or reserves.”

So the bureau has to keep a large amount of money on hand—a seemingly far larger amount than they may need at present, to pay potential claims that may or may not ever be filed and approved. At the same time, even a system as flexible as the bureau’s can have excessive amounts of reserves.

The $1 billion premium rebate was the first, but not the only, method that the board devised to adjust the bureau’s net assets downward. “The board came up with a number of things to bring the assets down to the guidelines,” he said.

The base rate premium for private employers was reduced a little more than 2 percent.

Another method that the board used to spend some of that extra money was to triple the amount of grant money available to employers for safety intervention programs, from $5 million to $15 million per year, said Teets. That act also fits in to the bureau’s general mission of increasing workplace safety altogether.

The bureau is spending money to update its computer system as well.

The new computers will be used to create what will be one of the most significant changes in the way employers pay premiums in the history of the bureau.

“This is a little complicated,” said Teets.

“We do not bill for the upcoming policy year,” he said. “We bill for the past six months, and then hope that you pay your bill.”

That is about to change.

The bureau will soon start billing in advance, in six month intervals. That creates, said Teets, a one-time double payment, which will be balanced by a one-time credit amounting to a total of approximately $900 million. The result is a six-month period in which, on balance, most employees will receive free workers compensation insurance. But it also wipes out almost a $1 billion in the bureau’s surplus at the same time.

The cumulative effect of all of these actions, said Teets, “will bring us close to the net asset,“ guideline amount.

Other voices also chimed in to the rebate discussion. The office of Gov. John Kasich was involved in the rebate discussion. “The governor also wanted us to look at solutions that could spur economic growth in the state,” said Teets. “He thought that maybe the rebate could be a good way to do that.”

In fact, it was the governor who made the rebate announcement.

That announcement was made approximately one month after the BWC lost a nearly $900 million lawsuit brought against it by basically the same class of employers in Cleveland.

Those two events bear no relation to one another, said Teets.

But the lead plaintiffs and their representatives in that case, a class action in which the lead plaintiff is the San Allen company, disagree.