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South Carolina passes workers comp changes

South Carolina passes workers comp changes

COLUMBIA, S.C.--South Carolina lawmakers last week approved a workers compensation reform package that includes changes sought by both employers and insurers.

One key change is the phasing out--by 2013--of the state's second-injury fund, a move South Carolina self-insured employers supported. That fund typically assesses insurers and self-insurers to pay for treatment of injuries or disabilities that occurred at an employee's previous employer.

Meanwhile, employers and claimant attorneys won greater scrutiny of the loss-cost multipliers insurers use to set rates, which supporters of the change say will ultimately reduce costs in a state that saw workers comp rates rise by more than 18% last year. South Carolina ranks second in the nation since 2000 in terms of how quickly rates have increased, according to a statement from Gov. Sanford, who is expected to sign the bill today.

South Carolina self-insured employers lobbied to dissolve the second-injury fund because their recoveries from it failed to keep up with the increasing assessments paid into the fund, said Hugh McAngus, president of the South Carolina Self-Insurers Assn. Inc. Mr. McAngus is also a workers comp attorney at McAngus, Goudelock & Courie L.L.C. in Columbia, S.C.

The South Carolina Second Injury Fund's 2005-2006 annual report shows that assessments rose to $188.5 million in 2006, up from $177 million the prior year. Total reimbursements, however, dropped to $147.6 million from $166.9 million.

But dissolving the state's fund will not reduce insured employer costs, said Frank Knapp, president of the South Carolina Small Business Chamber of Commerce in Columbia. Instead, insurers will absorb costs currently paid by the second-injury fund and then shift those expenses onto employers, Mr. Knapp said.

"All it's going to do is get pushed onto your loss costs," Mr. Knapp said.

Boca Raton Fla.-based NCCI Holdings Inc. estimates that with the second-injury fund's elimination, insurer loss costs will rise about 3% to 4%, Mr. Knapp said, noting that his organization opposed dissolution of the fund for that reason.

But a portion of that 3% to 4% increase in loss costs would be offset by efficiencies insurers will bring to the new process, said Amy Quinn, state relations executive for the NCCI in Columbia, S.C.

Other savings expected to result from the reforms could further offset the increase in loss costs, Ms. Quinn added. The NCCI is currently evaluating the legislation to determine the extent of potential savings.

While the South Carolina Small Business Chamber of Commerce opposed the elimination of the second-injury fund, it was apparent that lawmakers would adopt a bill containing such a measure, Mr. Knapp said. Realizing this, his organization and other opponents sought a compromise with lawmakers to include a provision requiring insurers to submit detailed information about their loss- cost multipliers, leaving it to the Department of Insurance to determine whether they are appropriate.

Insurers apply a loss-cost multiplier--which includes costs such as administrative expenses and profit--to pure premium rates when setting pricing. Pure premium rates include loss expenses such as medical and indemnity costs only.

Requiring the Department of Insurance to scrutinize insurers' loss-cost multipliers "is part of the reason we didn't go down kicking and screaming," said Coretta Bedsole, executive director of the Assn. of South Carolina Claimant Attorneys.

The provision will force insurers to disclose information about their pricing practices and profits, Ms. Bedsole predicted.