Since its inception in 1993, the FWCJUA has only represented one-to-three percent of the market, and currently has just 3,000 policies in force. Given the small number of policies in the association, it has largely operated with little notice. That changed during the turbulent debate over the 2003 workers' compensation reforms when many small employers were caught without available and affordable coverage. Faced with those complaints from constituents and anticipating a need for more coverage due to changes in the state's construction exemption law, lawmakers turned to the association as a short-term solution. However, in widening the door into the FWCJUA, lawmakers abandoned a decade-long policy that called for the association to be self-funding, a decision that lead to deficits that lawmakers are now seeking ways to pay off.

In the 2006 legislative session, House and Senate lawmakers attempted to draft a FWCJUA bill that would institute a wide range of reforms on both the funding and operations of the association. Lawmakers, however, were unable to broker a bill due to a split over whether the association should retain its current autonomy, or become more of a quasi-state agency. A breakthrough in negotiations between the two chambers came when lawmakers decided that the top priority was to qualify the FWCJUA for federal tax-exempt status. Since 1994, the association has paid $33 million in taxes, including $16 million last year. With the session drawing to a close, lawmakers inserted the reform language into a bill that implemented the state budget. The reforms were tied to a $7.1 million appropriation in the main budget bill, which was earmarked to help pay off FWCJUA deficits. Governor Jeb Bush used his line item veto authority to strike down the appropriation, which had the effect of rendering the reforms moot.

In response to the veto, the Senate Banking and Insurance Committee recently passed a bill (SB 1894) that largely follows the reforms agreed to by lawmakers last year. Once again taking the position that the top priority is obtaining federal tax-exempt status by Jan. 2008, lawmakers are taking steps that would increase the state's control over the residual market. The Financial Services Commission would appoint the nine-member board, as opposed to the current system where the industry names five members, and regulators appoint four members, including the state consumer advocate. Although the commission would name the board members, the make-up of the board would remain the same. The bill requires that, in the event the FWCJUA is dissolved, all remaining assets must be returned to the state. The Office of Insurance Regulation would also have the power to reject all or part of the FWCJUA's plan of operation.

The one provision that would directly affect policyholders is a change in the association's rate-making process. Currently, the association can implement rate increases on a “use and file” basis, whereby employers' premiums can be raised before the rates are approved by regulators. Instead, the bill would require the FWCJUA to obtain prior approval before implementing rate increases. Other provisions in the bill include implementing a code of ethics for association staff and board members, requiring vendors to bid for contracts, and prohibiting the use of outside lobbyists.

Funding Issues

When it comes to the funding problems faced by the FWCJUA, the irony is that it is a problem of the legislature's own making. Caught up in the turbulent atmosphere of the 2003 reforms, lawmakers established subplans A, B, C, and D, to meet the coverage options of certain employers. Subplan D was established to provide coverage to new employers who hadn't yet had a loss history to establish a modification factor. The subplan was also opened to those employers with an experience modification factor of 1.1 or less and employed 15 or fewer workers. Non-profit organizations that received at least 50 percent of their income from state contracts or endowments were eligible for coverage. To make the subplan affordable, lawmakers set the rates at 25 percent above manual rates for small employers and 10 percent above manual rates for non-profit corporations.

As lawmakers moved forward to implement subplan D, FWCJUA actuaries warned that the rates for subplan D would have to be 2.57 times the manual rates to be actuarially sound. By capping the subplan's rates at a lower level, lawmakers all but guaranteed the subplan would run a deficit. As of Dec. 31, 2003, subplan D had a deficit of $9.9 million, which could only be funded through assessments against the subplan's policyholders. However, since those policyholders were mainly small employers, the prevailing opinion is that they could not raise the money to completely fund the deficit.

In 2004, lawmakers attempted to rectify the problems with the 2003 reforms by revamping the coverage options for employers. However, the legislature once again rejected the idea of immediately making the FWCJUA self-funded. Instead, lawmakers closed subplans A, B, C, and D and replaced them with a three-tier coverage plan, which was designed to bring rates more in line with an individual employer's loss ratios. Tiers one and two's rates were capped at 25 percent and 50 percent above manual rates, until the tiers developed sufficient loss history to set actuarial rates as of Jan. 2007.

Lawmakers also put into place several other measures designed to provide funds to pay off deficits. They established a $15 million contingency fund in the Workers' Compensation Administrative Trust Fund to help fund subplan D deficits. The FWCJUA could request money from the Legislative Budget Commission to issue monies from the fund on a three-month basis. Additionally, lawmakers granted the association the authority to levy a below-the-line assessment on all policyholders in the voluntary market to fund deficit tiers one and two. The FWCJUA could also tap into the contingency reserve fund in the event of tier-three deficits. The ability of the association to take such actions expires on July 1, 2007, which lawmakers are now looking to extend until 2012.

Signs of Improvement

Looking at the FWCJUA's current status, its financial outlook has improved considerably. The association has some 3,000 policies in force, which is a testament to the return of the voluntary market post-2003. Based on its 2006 annual statement, the FWCJUA has an overall surplus of $8.5 billion. Looking at the combined resources of subplans A, B, and C, the three coverage plans had a $39 million surplus, which is attributable to subplan C. If the proposed reforms take effect, the FWCJUA could use the surplus to pay off deficits in subplan D, and tiers one and two. If the surplus doesn't cover the deficits, the FWCJUA may request money from the $15 million contingency fund. Tier-three deficits are covered by assessments on tier-three policyholders. The danger that the tiers will run a deficit has greatly decreased due to a provision that required the FWCJUA to set rates for the tiers after January, which reflect their loss experience. As of January, tier-one rates were set at 1.34 times manual rates, tier two 2.15 times manual rates, and tier three at 2.88 manual rates.

The FWCJUA financial report also shows that it will need less money from the contingency fund than earlier projections indicated. The association estimates that subplan D's deficit will equal $9.3 million. To date, the FWCJUA has received $7.9 million from the $15 million contingency fund. It will need another $1.4 million for a total of $9.3 million, which falls substantially lower than the amount set aside by lawmakers.