HBA-ATS C.S.H.B. 3697 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3697 By: Siebert Business & Industry 4/25/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Created in 1991 by the 72nd Texas Legislature, the Texas Workers' Compensation Insurance Fund (fund) provides workers' compensation insurance to Texas businesses and their employees and to Texas employers that operate in other states. Although the fund operates as a workers' compensation insurance company in the private sector, its purpose is to serve as a competitive force in the marketplace, guarantee the availability of workers' compensation insurance in this state, and serve as an insurer of last resort. Since January 1, 1992, the fund has written over 250,253 policies that provide coverage to more than 35,000 businesses. Consequently, the fund has become the largest workers' compensation insurer in the state. C.S.H.B. 3697 authorizes the fund to establish multitiered premium systems to price workers' compensation insurance to insureds in the fund's competitive programs, as well as to insureds to whom policies are offered by the fund under existing Article 5.76-4 (Fund as Insurer of Last Resort). In addition, this bill authorizes the systems to provide for higher or lower premium payments by insureds based on the fund's evaluation of the underwriting characteristics of the individual risk and the appropriate premium to be charged for the policy coverages. This bill deletes the provision in the Insurance Code that grants to the fund a tax credit equal to two percent of the gross workers' compensation premiums written by the fund during the period for which taxes are assessed. Under this bill, the fund is a member of and is protected by the Texas Property and Casualty Insurance Guaranty Association. This bill requires the comptroller of public accounts (comptroller), in cooperation with the Texas Department of Insurance (department), to prepare a list, by year, of the insurers and certified selfinsurers who paid the maintenance tax surcharges for calendar years 1991-1997. The fund is required to issue separate checks to each insurer and certified self-insurer for each year in which the maintenance tax surcharge was paid. The fund must make the payments from the surplus of the fund. Each policyholder is entitled to receive a proportionate share of the amount of maintenance tax surcharge paid by the workers' compensation insurer that provided coverage during each 12month recoupment period beginning June 1, 1992, and ending May 31, 1998. Each insurer must issue a refund check to the policyholder for the amount of the refund for each policy written during the recoupment period. Similarly, the fund is required to provide refunds to policyholders of the fund who paid a proportionate share of the amount of maintenance tax surcharge paid voluntarily by the fund for calendar years 1994-1995. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the commissioner of insurance in SECTION 3 (Section 10A, Article 5.76-5, Insurance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 9(c), Article 5.76-3, Insurance Code, as follows: (c) Authorizes the Texas Workers' Compensation Insurance Fund (fund) to establish multitiered premium systems to price, rather than provide, workers' compensation insurance to insureds in, rather than who would not otherwise meet, the fund's competitive programs, as well as to insureds to whom policies are offered by the fund under existing Article 5.76-4 (Fund as Insurer of Last Resort), rather than the fund's underwriting standards, notwithstanding any other provision of the Insurance Code or any other state insurance law, rather than any other provision of this article. Authorizes the systems to provide for higher or lower premium payments by insureds based on the fund's evaluation of the underwriting characteristics of the individual risk and the appropriate premium to be charged for the policy coverages, rather by insureds who present higher than normal risks within a class. SECTION 2. Amends Section 12, Article 5.76-3, Insurance Code, by deleting Subsection (b), which grants to the fund a tax credit equal to two percent of the gross workers' compensation premiums written by the fund during the period for which taxes are assessed. Provides that the fund is a member of and is protected by the Texas Property and Casualty Insurance Guaranty Association, rather than prohibits the fund from being a member of or being protected by the Texas Property and Casualty Insurance Guaranty Association. Redesignates existing Subsections (c) and (d) to Subsections (b) and (c). Makes conforming changes in existing Subsections (a) and redesignated Subsection (b). SECTION 3. Amends Article 5.76-5, Insurance Code, by adding Sections 10A and 10B, as follows: Sec. 10A. REIMBURSEMENT OF MAINTENANCE TAX SURCHARGE BY INSURERS. (a) Requires the comptroller of public accounts (comptroller), in cooperation with the Texas Department of Insurance (department), to prepare a list, by year, of the insurers and certified self-insurers who paid the maintenance tax surcharges for calendar years 1991-1997. Provides that the list must include the amount by year of the maintenance tax surcharge paid by each insurance company and certified-self insurer. (b) Requires the fund to issue separate checks, in the amount determined under Subsection (a), to each insurer and certified self-insurer for each year in which the maintenance tax surcharge was paid. Requires the fund to make the payments from the surplus of the fund. (c) Entitles each policyholder to receive a proportionate share of the amount of maintenance tax surcharge paid by the workers' compensation insurer that provided coverage during each 12-month recoupment period beginning June 1, 1992, and ending May 31, 1998. Specifies the procedure required to determine the proportionate share. (d) Requires each insurer to issue a refund check to the policyholder for the amount of the refund for each policy written during the recoupment period. Provides that refunds must be made by September 1, 2000. (e) Requires each insurer to file with the department, by January 1, 2001, a report that covers each recoupment period. Enumerates the information required in the report. (f) Requires, if an insurer is unable to locate a policyholder, the insurer to notify the department and to return the refund to the fund for deposit in the surplus of the fund. Requires the department to make a reasonable effort to locate the policyholder. Authorizes the department to charge against the refund the costs for locating the policyholder. Requires the department, if the policyholder is located, to remit the refund less the associated costs. Requires that the refund be retained in the surplus of the fund if the policyholder is not located after all efforts have been exhausted. (g) Requires the commissioner to adopt rules as necessary to implement this section. Sec. 10B. REIMBURSEMENT OF MAINTENANCE TAX SURCHARGE BY FUND. Requires the fund to provide refunds to policyholders of the fund who paid a proportionate share of the amount of maintenance tax surcharge paid voluntarily by the fund for calendar years 1994-1995. Requires the fund to compute the refund owed using a procedure analogous to that provided for insurance companies under Section 10A. SECTION 4. Amends Subchapter G, Chapter 5, Insurance Code, by adding Article 5.76-6, as follows: Art. 5.76-6. INTERIM STUDIES. (a) Requires the fund to enter into a joint venture with the Research and Oversight Council on Workers' Compensation (council) by providing data for interim studies. Requires funding for the studies to come from the surplus of the fund. Provides that the purpose of the studies is to improve worker safety and the cost and quality of health care delivered to injured workers. (b) Enumerates the examinations required to be included in the studies. (c) Requires the council to submit requests for proposals for contracts with private vendors to perform the studies. Requires the comptroller to assist the council in bidding, evaluating, and securing the contracts. (d) Requires the Texas Workers' Compensation Commission to assist the council by providing computer data and other information. (e) Authorizes the council to enter into contracts, memoranda of understanding, and interagency agreements as necessary to implement this article. (f) Requires the council to report the result of the studies and recommendations for proposed legislation to the 77th Legislature by February 1, 2001. Requires the council to provide written copies of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. (g) Establishes March 1, 2001, as the expiration date of this article. SECTION 5. Amends Section 3, Article 21.28-C, Insurance Code, by adding proposed Subsection (b), to provide that the Property and Casualty Insurance Guaranty Act applies to insurance written through the fund. Makes conforming changes. SECTION 6.Makes application of Section 12(c), Article 5.76-3, Insurance Code, prospective, beginning on January 1, 2000. SECTION 7.Emergency clause. Effective date: upon passage. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.H.B. 3697 differs from the original bill in the caption, which relates to the operation of the Texas Workers' Compensation Insurance Fund and the disposition of certain surpluses of that fund, rather than to the operation of the Texas Workers' Compensation Insurance Fund. C.S.H.B. 3697 differs from the original bill by removing the entire text of SECTION 1, which amended Section 2(a), Article 5.76-3, Insurance Code, to require the Texas Workers' Compensation Insurance Fund (fund) to serve as a stabilizing, rather than as a competitive, force in the marketplace, among other requirements, and replaces it with text amending existing Section 9(c), Article 5.76-3, Insurance Code. In new SECTION 1, the substitute authorizes the fund to establish multitiered premium systems to price, rather than provide, workers' compensation insurance to insureds in, rather than who would not otherwise meet, the fund's competitive programs, as well as to insureds to whom policies are offered by the fund under existing Article 5.76-4 (Fund as Insurer of Last Resort), rather than the fund's underwriting standards, notwithstanding any other provision of the Insurance or any other state insurance law, rather than any other provision of this article. Authorizes the systems to provide for higher or lower premium payments by insureds based on the fund's evaluation of the underwriting characteristics of the individual risk and the appropriate premium to be charged for the policy coverages, rather by insureds who present higher than normal risks within a class. C.S.H.B. 3697 differs from the original bill by removing the entire text of SECTION 2 and replacing it with new text. SECTION 2 of the original amends Section 13(c), Article 5.76-3, Insurance Code, to add to the requirement that money in the fund be held for the purposes stated in this article the exception that unassigned surplus funds are subject to legislative appropriations as provided in this subsection on the approval of the commissioner of insurance (commissioner). The original also deletes the condition that the funds must be held exclusively for the purposes stated in this article, and deletes the prohibition against the use or appropriation of unassigned surplus funds for any other purpose. In addition, the substitute adds proposed Subdivision (1) to limit the appropriation of unassigned surplus funds from the fund to the general revenue fund, and to prohibit the appropriation of unassigned surplus funds for any particular agency or purpose. The original also adds Subdivision (2) to provide that appropriations from the fund to the general revenue fund are contingent on the approval of the commissioner that such appropriations will not adversely affect the financial ability of the fund to perform its duties and responsibilities under this article. In new SECTION 2, the substitute amends Section 12, Article 5.76-3, Insurance Code, to delete existing Subsection (b), which grants to the fund a tax credit equal to two percent of the gross workers' compensation premiums written by the fund during the period for which taxes are assessed. The substitute also modifies existing Subsection (d) to provide that the fund is a member of and is protected by the Texas Property and Casualty Insurance Guaranty Association, rather than to prohibit the fund from being a member of or being protected by the Texas Property and Casualty Insurance Guaranty Association. The substitute redesignates existing Subsections (c) and (d) to Subsections (b) and (c) The substitute makes conforming changes in existing Subsections (a) and redesignated Subsection (b). C.S.H.B. 3697 differs from the original bill by removing the entire text of SECTION 3 and replacing it with new text. SECTION 3 of the original required the commissioner to report to the governor, the comptroller of public accounts, and the Legislative Budget Board on the amount of unassigned surplus funds of the fund that could be appropriated to the general revenue fund during the Fiscal Year 2000-2001 biennium that would not adversely affect the financial ability of the fund to perform its duties and responsibilities under this article. The original also required the commissioner to make the report no later than 10 days after the effective date of this Act, but in no event later than May 3, 1999. In new SECTION 3, the substitute amends Article 5.76-5, Insurance Code, by adding Sections 10A and 10B: Proposed Section 10A(a) requires the comptroller of public accounts (comptroller), in cooperation with the Texas Department of Insurance (department), to prepare a list, by year, of the insurers and certified self-insurers who paid the maintenance tax surcharges for calendar years 1991-1997. Provides that the list must include the amount by year of the maintenance tax surcharge paid by each insurance company and certified-self insurer. Proposed Section 10A(b) requires the fund to issue separate checks, in the amount determined under Subsection (a), to each insurer and certified self-insurer for each year in which the maintenance tax surcharge was paid. Requires the fund to make the payments from the surplus of the fund. Proposed Section 10A(c) entitles each policyholder to receive a proportionate share of the amount of maintenance tax surcharge paid by the workers' compensation insurer that provided coverage during each 12-month recoupment period beginning June 1, 1992, and ending May 31, 1998. Specifies the procedure required to determine the proportionate share. Proposed Section 10A(d) requires each insurer to issue a refund check to the policyholder for the amount of the refund for each policy written during the recoupment period. Provides that refunds must be made by September 1, 2000. Proposed Section 10A(e) requires each insurer to file with the department, by January 1, 2001, a report that covers each recoupment period. Enumerates the information required in the report. Proposed Section 10A(f) requires, if an insurer is unable to locate a policyholder, the insurer to notify the department and to return the refund to the fund for deposit in the surplus of the fund. Requires the department to make a reasonable effort to locate the policyholder. Authorizes the department to charge against the refund the costs for locating the policyholder. Requires the department, if the policyholder is located, to remit the refund less the associated costs. Requires that the refund be retained in the surplus of the fund if the policyholder is not located after all efforts have been exhausted. Proposed Section 10A(g) requires the commissioner to adopt rules as necessary to implement this section. Proposed Section 10B requires the fund to provide refunds to policyholders of the fund who paid a proportionate share of the amount of maintenance tax surcharge paid voluntarily by the fund for calendar years 1994-1995. Requires the fund to compute the refund owed using a procedure analogous to that provided for insurance companies under Section 10A. C.S.H.B. 3697 differs from the original bill by redesignating SECTION 4 (long emergency clause) of the original to SECTION 7. In new SECTION 4, the substitute amends Subchapter G, Chapter 5, Insurance Code, by adding Article 5.76-6: Proposed Article 5.76-6(a) requires the fund to enter into a joint venture with the Research and Oversight Council on Workers' Compensation (council) by providing data for interim studies. Requires funding for the studies to come from the surplus of the fund. Provides that the purpose of the studies is to improve worker safety and the cost and quality of health care delivered to injured workers. Proposed Article 5.76-6(b) enumerates the examinations required to be included in the studies. Proposed Article 5.76-6(c) requires the council to submit requests for proposals for contracts with private vendors to perform the studies. Requires the comptroller to assist the council in bidding, evaluating, and securing the contracts. Proposed Article 5.76-6(d) requires the Texas Workers' Compensation Commission to assist the council by providing computer data and other information. Proposed Article 5.76-6(e) authorizes the council to enter into contracts, memoranda of understanding, and interagency agreements as necessary to implement this article. Proposed Article 5.76-6(f) requires the council to report the result of the studies and recommendations for proposed legislation to the 77th Legislature by February 1, 2001. Requires the council to provide written copies of the report to the governor, the lieutenant governor, and the speaker of the house of representatives. Proposed Article 5.76-6(g) establishes March 1, 2001, as the expiration date of this article. C.S.H.B. 3697 differs from the original bill by adding SECTION 5 to amend Section 3, Article 21.28-C, Insurance Code, by adding proposed Subsection (b), to provide that the Property and Casualty Insurance Guaranty Act applies to insurance written through the fund. The substitute makes conforming changes. C.S.H.B. 3697 differs from the original bill by adding SECTION 6 to make application of Section 12(c), Article 5.76-3, Insurance Code, prospective, beginning on January 1, 2000.