Ohio: Assessment calls for major changes to workers' comp bureau

The Ohio Bureau of Workers' Compensation revealed the details of a yearlong comprehensive study of the state's workers' compensation system.

The study, which was conducted by actuarial insurance experts from Deloitte Consulting LLP, recommended major changes to the state's workers' comp system. The study measured the performance of Ohio's workers' comp system and benchmarked it against other state and private systems.

The study was mandated under House Bill 100 to improve the accountability and operational integrity of the bureau. The BWC has come under fire in recent years for its investment and operational practices.

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"For more than a year, we have worked closely with Deloitte as they have gathered information for this independent, top-to-bottom assessment of BWC," said Marsha Ryan, administrator of the bureau. "This process has afforded us a much-needed opportunity to closely examine the services we provide to injured workers, and the insurance products we offer to 270,000 Ohio employers. Deloitte's recommendations are already providing us with outstanding guidance for resolving challenging issues. The study will serve as a guide for fundamental long-term improvements to Ohio's workers' compensation system."

Study highlights problem areas. Researchers from Deloitte offered several recommendations for implementing changes, including:

Revise or replace group experience rating and terminate related programs. "We are unaware of any other state that has a program which functions as poorly as the existing group rating program does in Ohio," the report stated.
The bureau should develop and implement a policy for the level of net asset to maintain for each fund. According to the report, the BWC lacks a policy to provide guidance on the level of net assets or other measures to ensure financial security at a prudent level.

"BWC's net assets currently do not indicate sufficient financial strength when compared to their peers," the report said.

Make adjustments to the overall statewide rate level and classification rate indications. Specifically, researchers recommended that more responsiveness be given to Ohio trends by using three to five years of loss data in the calculation rather than 10 years.

Consider reinsurance to provide financial protection. According to the report, the bureau should -- from time to time -- determine whether insurance protection can be purchased to limit the impact to the BWC from catastrophic events.
Consider a pre-assessment methodology for the Self Insurance Employers Guaranty Fund. The report recommended that the BWC consider a pre-assessment methodology to help improve the ability of the SIEGF to address the cost of future bankruptcies and mitigate the additional financial burden that this would pose to remaining self-insured employers.
Make operational and legislative changes to improve the effectiveness and efficiency of managed care organizations. According to the study, the relatively large number of MCOs and many duties for which they are responsible causes the BWC to spread audit and oversight functions over a relatively large population of programs and vendors. In addition, the non-competitive and bundled service MCO environment limits options for determining the value of specific services and to compare them one to another or to other out-of-state arrangements, the report stated.
Revise the rules for out-of-state experience rating. Researchers noted that Ohio has rules for out-of-state experience rating which are inconsistent with industry practices.

Many recommendations are already in use. According to officials from the BWC, a number of Deloitte's recommendations have already been implemented. Ryan specifically noted the adoption of a comprehensive rate reform plan that is expected to lower base comp rates by 12 percent. In addition, the plan will add a deductible program and a group retrospective rating program for Ohio employers. In the study, Deloitte identified group rating as one of the highest priorities, and Ryan said it has been among the top priorities of the bureau and its board of directors for nearly two years.

Now that the study is complete, Ryan said, the next steps include an intense review and analysis of the recommendations by an internal review team. The team will review the volumes of study findings, analyze the recommendations and present a schedule prioritizing recommended changes, she said. In addition, the team will also outline any required legislative and rule changes and identify a timeline for the implementation of changes. The bureau's implementation plan will be presented to the BWC's board of directors' actuarial committee later this summer. As mandated in H.B. 100, Ryan is expected to report progress to the Ohio Legislature in September.

May 14, 2009

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