To:           All Workers' Compensation Insurance Companies, Self-Insured Employers, Group Funds and Third-Party Administrators

From:      Karla M. McLucas, Director, Missouri Department of Labor and Industrial Relations

Re:          Workers' Compensation Administrative Tax and Second Injury Fund Surcharge

Date:       December 29, 1998

Effective January 1, 1999 (for calendar year 1999) the full 2 percent Workers' Compensation Administrative Tax and 3 percent Second Injury Fund Surcharge will be assessed on workers' compensation premiums.

The full amount of tax and surcharge was reimposed for calendar year 1998, following several years of suspended or substantially reduced Workers' Compensation Administrative Tax and Second Injury Fund Surcharge levies. A reform law passed in 1993 was designed to spend down accumulated fund surplus. Beginning in 1994, Missouri suspended the imposition of both assessments because of the large surplus in each of the accounts. In 1997, the tax and surcharge were reimposed but at only half of the authorized levels. These steps saved Missouri businesses $100 million in taxes and surcharges while the funds remained at sufficient levels to cover claims and operating costs.

In 1994, after new claim and settlement guidelines were applied to the Second Injury Fund, the balance or surplus reached more than $71 million. At the end of 1998, the projected Second Injury Fund balance will be $5.1 million. Without the surcharge, this is not enough to fund anticipated 1999 claims.

In 1994, the Workers' Compensation Administrative fund posted a record high balance of $35 million. In addition, rapidly increasing premiums of the late eighties and early nineties expanded both the tax base and collections for the fund, which covers Missouri's expenses for overseeing this insurance system. At the end of 1998, the projected balance in this fund will be only $10.1 million; an inadequate amount to fund anticipated calendar year 1999 costs without the revenue generated by the tax.

Continued decline of workers' compensation premium costs during 1998 enabled Missouri employers to continue to realize cost savings despite imposition of the full Workers' Compensation Administrative Tax and Second Injury Fund Surcharge. However, as these premiums declined, so did the revenues coming into the two funds.

In order to be able to meet fund demands during calendar year 1999, it is imperative that the full 2 percent and 3 percent levies be maintained.

Following are some additional achievements:

• Between 1995 and 1997, Missouri businesses saved an estimated $229 million from rate reductions not including special discounts of up to 45 percent granted to safety-conscious businesses.

• Through December 1998, 267 of Missouri's 307 licensed workers' compensation insurers have filed rate decreases averaging 15.25 percent for this calendar year alone.

• The Missouri Department of Insurance agrees with the recommendation of the National Council on Compensation Insurance that insurers reduce rates by 4.5 percent in calendar year 1999.

• Workers' compensation losses (benefits paid and incurred) dropped from $605 million in 1991 to $315 million in 1997. Insurers are paying 59 cents in benefits for each $1.00 in premiums collected.

• Businesses, workers, insurers and government have worked together to achieve these results, which have fostered a healthy business environment, made Missouri an attractive and competitive workers' compensation market, and provided fair treatment for injured workers.

The Department of Insurance and the Department of Labor and Industrial Relations look forward to working with you in 1999. If you have any questions or need additional information, please feel free to contact Mr. David Murray, Workers Compensation Specialist, Department of Insurance, at (573) 751-3365, or Ms. Jo Ann Karll, Director, Division of Workers' Compensation, at (573) 751-4231.

Revised Second Injury Fund Surcharge Reporting Form | Excel 97 | PDF | Lotus 123 v4 |
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