The other measures called for the FWCJUA to submit a request to the Internal Revenue Service no later than Jan.1, 2007, seeking federal tax-exempt status. And perhaps the greatest change would have come in the association's rating law, which would have been modified so that the residual insurer could no longer apply rates of a "use and file" basis.

As lawmakers closed into the final days without agreeing on a bill, they changed course and inserted the proposed reforms in a bill implementing the state budget. That language was tied to a $7.1 million appropriation in the main budget bill, which was the remainder of a contingency fund set up by lawmakers last year to help the FWCJUA fund deficits. Using his line-item veto, Bush struck down the appropriation, which had the effect of rendering the reforms moot. Bush offered no public reason for the veto.

FWCJUA General Counsel Tom Maida said that after consulting with state officials, there is a general agreement that the status quo will continue. "If the appropriation doesn't exist then there is nothing to implement," he said.

Maida also noted by inserting the reforms in the implementing bill, lawmakers might have violated the state's single-subject law. Under the law, bills must address a specific issue or issues that have some commonalty such as insurance. Under a strict interpretation of the single-subject law, lawmakers arguably were wrong to insert what amounted to a change in public policy in a bill that was designed to clarify how the revenues in the state budget are allocated. He said the FWCJUA was somewhat disappointed that a bill did not pass this session. As for an explanation of why the House and Senate could not come to an agreement earlier, Maida said it hinged on whether the FWCJUA should become more of a state agency as opposed to its current function as more of an independent operation.

A Problem, Not a Crisis

The irony of the FWCJUA is that it is a problem of the legislature's own making. Caught up in the turbulent atmosphere of the 2003 reforms, lawmakers created subplans A, B, C, and D. Of the four categories, subplan D was aimed at providing smaller employers with affordable coverage. Lawmakers set the rates at 125 percent above manual rates for small employers and 110 percent for nonprofit organizations despite the FWCJUA's warning that the rates would need to be 2.57 percent higher than the voluntary market to be actuarially sound. By artificially suppressing the rates, lawmakers guaranteed that the subplan would quickly produce a deficit. FWCJUA Executive Director Laura Torrence officials said that as of May, subplan D has a deficit of $13.3 million. Initially, any deficits in the subplan D were to be retired by an assessment on subplan policyholders. However, given that the subplan has few policyholders that consisted of small employers, the FWCJUA noted it would be highly unlikely the assessment base could fund the deficit.

In 2004, lawmakers were forced to go back to the drawing board and restructure the FWCJUA. Lawmakers closed subplans A, B, C, and D and replaced them with a three-tier coverage plan, which was designed to bring rates more inline with an individual employer's loss ratios. Rates for tiers one and two were capped at 25 percent and 50 percent above manual rates, until the tiers developed sufficient loss history to set actuarial rates. Lawmakers stated that the FWCJUA had to establish the actuarially sound rates no later than Jan. 1, 2007. Tier three coverage, which also has to be actuarially sound, is available to employers who don't qualify for tier one or tier two coverages.

Once again, however, by not stating that tier one and tier two coverages immediately implement sound rates, lawmakers set up the possibility of creating further deficits. Yet on the positive side, Torrence said that due to a favorable loss experience and investment income, the deficit in the tiers is likely to be substantially reduced. "It is a cause for concern," she said. "But it's not going to be a problem for quite some time."

Recently, the association submitted a deficit reduction plan to the Office of Insurance Regulation, which found that the association's financial situation had substantially improved. Overall, the FWCJUA recorded a surplus of $8.5 million through 2005. Looking at the combined resources of subplans A, B, and C, the three coverage plans had a $30 million surplus, which is attributable to subplan C. If the proposed reforms had taken effect, the FWCJUA could have used the $30 million to pay off deficits in any of the coverage plans, which likely would be enough to resolve any outstanding financial issues.

Subplan D has an $11.8 million deficit that by law may be paid by allowing the FWCJUA to have access to the remainder of a $15 million contingency fund set up by lawmakers. According to the latest cash flow analysis, the estimated finances needed to fund D's deficit are $12.5 million, which is well short of the $15 million and removes the possibility of policyholder deficits. To date the FWCJUA has used $7.9 million, leaving $7.1 million in the fund. As for the three tiers, tier one has a $1.4 million deficit, while tiers two and three have deficits of $4.8 million and $3.4 million, respectively. A positive development in loss experience is expected to eliminate the tier three deficit this year, while the tier two deficit is expected to be retired in 2030. FWCJUA officials also indicated that they would eliminate the tier one deficit by raising rates sometime this year.