This has been a long time in coming. In fact I wrote an article for the Workers’ Compensation Journal in 2007 about this issue. What will the Ohio Supreme Court do?
At 104 pages this is a long opinion from the Court of Appeals. The best part, however, is the first paragraph.
Reduced to its irreducible essence, this appeal is about a cabal of Ohio Bureau of Workers’ Compensation (“BWC”) bureaucrats and lobbyists for group sponsors who rigged workers’ compensation insurance premium rates so that for employers who participated in the BWC’s group rating plan (“group-rated employers”), it was “heads we win,” and for employers who did not participate in the group rating plan (“nongroup-rated employers”), it was “tails you lose.” For more than 15 years, the BWC allowed nongroup-rated employers to subsidize excessive, undeserved premium discounts to group-rated employers who were handpicked by group sponsors to participate in the BWC’s group rating plan. The temerity of the group sponsors, untempered by any notions of equity from or of the BWC, exacted a heavy price for nongroup-rated employers – over $859 million.
Here is the issue in a nutshell. The basic purpose of insurance is to spread the risk. We all buy fire insurance and pay a little for the protection. If an insured’s house burns down, the insured does not suffer a complete loss, the insurance pool compensates him. Workers’ compensation insurance is the same principle. If a worker suffers an injury, the employer does not have to come up with thousands of dollars for medical and compensation costs. The employer pays a premium and the fund covers the costs. The worker is protected and the employer is not bankrupted.
Workers’ Compensation in Ohio is a universal insurance plan. That is every employer is required to be covered by the state insurance fund. So the insurance pool is large, and that is good as risks are spread over all employers. Certain large employers can be self insured.
Group rating was a scam to let certain organizations aggregate injury free employers into a group to get large premium discounts. These organizations would let employers into the group that had a minimal claims. It is like a health insurer charging cheap rates, but only insuring healthy individuals. As soon as someone gets sick, they lose their insurance. Or in the case of workers’ compensation, as soon as the employer has an employee injured, it would be kicked out of the group.
So group rating created haves and have nots. Employers in a group got huge discounts, while employers not in a group had to make up the difference in the cost of claims, with sometimes huge increases in premiums. In other words instead of spreading the risk over all employers, like insurance is supposed to do, group rating removed the risk from those in groups, and concentrated the risk in those not in groups because they had an injury.
At the root of this was money. The workers’ compensation fund has billions of dollars. Those aggregating groups charged employers a fee for organizing the group. These fees were kicked back or shared with such organizations as Chambers of Commerce, the Ohio Manufacturers Association, and NFIB. They loved group rating. It was money from heaven. Too bad for members who were kicked out of groups. They were in a minority. Tough luck for them. I wonder if these organizations really understood the big picture. Group rating is bad for business.
So we have this lawsuit tossing out group rating. Is group rating now history? Next step is the Ohio Supreme Court. Now things get political. Who are the big contributors to candidates to the Ohio Supreme Court according to public filings. All the justices except one are Republican. Big contributors to those candidates are those who profited from group rating. Any predictions?