Gov. Phil Bredesen’s reform of Tennessee’s workers’ compensation insurance system is reportedly already paying off for Tennessee employers, who stand to save an estimated $69.4 million in premiums annually under a new order by Commerce and Insurance Commissioner Paula Flowers.
The order mandates an average 6.3 percent reduction in workers compensation “loss cost” – the primary factor used in setting workers’ comp insurance premium rates paid by employers. That reduction is estimated to reduce total premiums paid by Tennessee employers by $69.4 million.
The projected savings is a reported direct result of the workers’ comp reform changes championed by Gov. Bredesen and passed by the Tennessee General Assembly this year. The rate adjustment specifically reflects projected cost savings from the lower “multiplier” on permanent partial disability benefits and the elimination of a requirement for case management services.
“I’m pleased that our workers’ compensation reform is already showing results,” said Gov. Bredesen. “This is good news for Tennessee employers and Tennessee workers, and will help us in our efforts to attract new jobs.”
Flowers modified the recommendation of the state’s rate service organization, NCCI, and set separate loss cost reductions for each of the five major industry categories:
* Manufacturing – 6.6 percent
* Contracting – 6.6 percent
* Clerical – 6.1 percent
* Goods and services – 5.6 percent
* Miscellaneous – 6.4 percent
“These potential savings will be significant for many of our Tennessee employers who have seen dramatic rate increases on their workers’ compensation insurance in recent years,” said Flowers. “We are hopeful that the reforms as a whole will stabilize workers comp costs in Tennessee.”
But the savings approved by Flowers is only the first wave of cost reduction anticipated in Gov. Bredesen’s reforms.
Under the new law, a new medical reimbursement rate schedule goes into effect July 1, 2005, and that will reportedly likely trigger another rate adjustment and additional savings. Additionally, as insurers continue to operate under the new law, the state’s rate review process will identify whether further adjustments need to be made to loss cost to reflect actual savings.
The new loss cost rate becomes effective for all policies new or renewing after Sept. 1.
Loss cost is the major element in the premium calculation for each individual employer, but not the only one. Individual employers’ premium rates are affected by the insurance company’s business cost, the employer’s own loss experience, and other factors that can either reduce or increase the premium level. As a result, a lower loss cost will not necessarily translate into a premium decrease that is the same for everyone.
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