93-12: Safety Credits and MCO Credits

* This bulletin was repealed by 08-05

To:           All Insurers Writing Workers Compensation in Missouri

From:      Jay Angoff, Director

Re:          Safety Credits and MCO Credits

Date:       November 12, 1993

The Department has been asked by a number of entities to set forth its position on the viability of two workers' compensation insurance premium credits authorized under 1992's House Bill 975, as modified in 1993 by Senate Bill 251.

The first premium credit concerns employer safety programs authorized under Section 287.125, RSMo, of HB 975. Under this section, an insured employer was authorized to apply to the Department of Labor and Industrial Relations to receive certification for the employer's in-house safety program. The Department was required to inspect such employer's operations and recommend any necessary changes or modifications to those operations. An employer who satisfied the Department's requirements would be certified and would become eligible for a premium discount of 5% or 10% "in the second year following the policy year that the certified safety program is put in place and certified". The amount of the credit would depend on whether the employer had either reduced its OSHA incidence rate by 50%, or had totally eliminated such incidents.

This section was repealed by SB 251 the following year, effective January 1, 1994. In its place, two new sections were enacted. Section 287.123, RSMo, required insurance companies to establish and make available upon request "comprehensive safety engineering and management services" programs certified by the Department of Labor and Industrial Relations. In addition, the General Assembly enacted Section 36 of SB 251, which provided that the Department of Labor and Industrial Relations "shall complete all applications filed prior to January 1, 1994, from employers for certification of employer safety programs." [Emphasis added.]

The Department of Insurance is in agreement with the Department of Labor and Industrial Relations that the language of Section 36 authorizes the Department of Labor and Industrial Relations to continue to inspect and certify employer safety programs after January 1, 1994, so long as the application under this program has been filed with the Department before January 1, 1994. Those employers who are subsequently certified and who reduce their losses by the requisite amounts will be entitled to the 5% or 10% credit.

To conclude otherwise would ignore the wording of Section 36. To conclude otherwise would also have the effect of retroactively divesting employers of a right to a credit which they may have gone to considerable effort and expense to achieve. Interpretations of statutes resulting in such retroactive results are generally not favored by the law. Finally, it should be recognized that, according to the Department of Labor's own data, the number of employers who are able to achieve certification and successfully reduce their losses by the levels required for a credit is relatively modest.

The Department of Insurance has come to a somewhat different conclusion regarding another provision of HB 975. Prior to HB 975, Section 287.320, RSMo, delegated to the Department of Insurance the responsibility of establishing uniform workers' compensation premium rates, under a system commonly-referred to as "administered pricing". Under HB 975, a new subsection 4 was added to this section. Under this new provision, the General Assembly directed that:

For all premium rates approved by the director of the department of insurance there shall be developed a uniform reduction of rates . . . as the result of a business using a managed care system for its workers' compensation injuries certified by the director. Such rate reduction and the criteria used to certify a managed care system shall be determined by the director by rule.

Under the provisions of rule 20 CSR 500-6.700, a 5% premium reduction was specified for employers utilizing a certified managed care organization (MCO). The credit was to be given for a three-year period, after which an employer's experience modification factor would reflect the effectiveness of the organization. However, in addition to specifying this time period, the Department required, as part of its MCO certification process, that managed care organizations make the following disclosure to employers:

"Notice: The employer is hereby advised that the premium discount program available as a result of this agreement is dependent on the status of Missouri statutes and Department of Insurance regulations. Modifications to this discount may be required to the degree necessary to comply with any changes to these state laws. For example, this program may be modified or terminated in the future in the event the state of Missouri ceases to require that the rates for workers' compensation insurance be set by the Missouri Department of Insurance." [Department memorandum to MCOs, November 30, 1992.]

All of Section 287.320, RSMo -- including the above mentioned subsection 4 on MCOs -- was repealed by SB 251, effective January 1, 1994. This repeal is consistent with the transition from and "administered pricing" mechanism for workers' compensation insurance to a "competitive pricing" mechanism. However, the public policy of encouraging the use of managed care organizations for workers' compensation claims was retained in SB 251's new Section 287.135. Subsection 3 of this section authorizes the Department of Insurance to promulgate rules which "set out the criteria under which the fees charged by a managed care organization shall be reimbursed by an employer's workers' compensation insurer. . . ." Such criteria are required to discourage the billing of unjustified costs. Also, insurers and managed care organizations are authorized to negotiate their own voluntary fee arrangements.

For a number of reasons, the Department of Insurance has determined that it is appropriate to end the automatic 5% premium credit after January 1, 1994. In large part, this decision is based on the fact that the 3-year credit of 5% was established by the Department by rule, and not by the General Assembly by statute. As mentioned, the Department's underlying statutory authority for this credit will cease as of January 1, 1994.

This decision is also consistent with the transition to competitive rating mechanism, where insurers are given greater control over the premiums they charge. In addition, it is also consistent with the General Assembly's specification of alternative methods of encouraging the use of such organizations (e.g. through private MCO/insurer agreements or Department-authorized fee arrangements). Finally, employers should be on notice of the possibility of the change as a result of the Department's disclosure requirement.

Employers who have contracted with a certified managed care organization both before their renewal date and before January 1, 1994, and who have not received a previous MCO credit will still be entitled to a 5% premium credit for a full year. After that date, any premium reductions for the use of a managed care organization shall be based on an insurer's schedule rating plan, private agreements between insurers and MCOs, or subsequent fee arrangements developed by the Department.