93-07: Deductible Plans for Workers' Compensation Policies

To:           All Workers Compensation Insurers

From:      Jay Angoff, Director

Re:          Deductible Plans for Workers' Compensation Policies

Date:       June 15, 1993

Following the circulation of the Department's February 9, 1993 BULLETIN 93-3 on workers' compensation deductible plans, the Department received requests to amend its approval criteria for large deductible plans in the following areas:

In addition to these recommendations, the Department recognizes that, in adopting Senate Bill 251, the General Assembly has authorized a fundamental change in manner in which workers' compensation rates will be regulated in Missouri. As signed by the Governor on June 21, this bill will move Missouri to a "competitive rating" environment for the voluntary market beginning January 1, 1994. In such an environment, insurers will have greater flexibility in pricing their policies.

Given this major modification to the state's underlying rate-setting mechanism, and in consideration of the above recommendations, the Department has concluded that it can modify its previous deductible policy approval criteria. The Department is generally in support of the recommendations listed above, with certain conditions outlined below. However, the Department takes no position on item "4)," which will necessitate that the General Assembly change the statute in question.

Henceforth, "large" deductible plans shall be deemed to be those with premiums of $100,000 or more, and will be governed by the standards set forth below. "Small" deductible plans will be deemed to be those applicable to any countrywide premium levels below $100,000 in premium; insurers seeking the approval of small deductible plans should set forth in two columns the size of the deductible amount to be offered and the size of the premium reduction to be provided. The NCCI has established reporting code numbers for deductibles of the following amounts: $100, $200, $300, $400, $500, $1,000, $1,500, $2,000, $2,500, $5,000, $10,000, $15,000, and $20,000. Insurers are expected to determine their own percentage of premium reductions for these categories, and provide actuarial justification for these reductions with their filing. Data reporting requirements for both "large" and "small" deductible plans shall also conform to approved and published NCCI standards.

In addition, insurers should adhere to the following guidelines for deductible plans. These criteria differ in many respects from those set forth in the Department's previous Bulletins, numbered 92-11 and 93-03.

"NOTICE: THIS WORKERS' COMPENSATION POLICY CONTAINS A DEDUCTIBLE OPTION, UNDER WHICH YOU, THE EMPLOYER, ARE REQUIRED TO REIMBURSE CERTAIN LOSSES. PLEASE READ THIS POLICY CAREFULLY AND UNDERSTAND ITS CONDITIONS THOROUGHLY PRIOR TO PURCHASING COVERAGE."

Insurance companies with pending applications for approval which meet the above criteria need not refile. An Emergency Rule representing the substance of the above criteria and reporting requirements will be filed by the Department with the Secretary of State.