In addition, as expected, a one-time premium dividend was not recommended for the bill employers will receive in July.
"Obviously, I'm not pleased to announce these changes," said BWC Administrator/CEO James Conrad. "We've tightened the reins administratively, reducing our operating budget to where it's $7 million less than it was10 years ago. But slower investment growth and skyrocketing medical costs make it financially impossible for us to maintain current rates or offer a dividend while still fully reserving the state insurance fund."
"While we are clearly disappointed and concerned for Ohio employers over the loss of these credits, it is something we knew would eventually have to be faced. We greatly appreciate the BWC efforts over the last several years in running an operation that has allowed for the past discounts," said Andy Doehrel, president and CEO of the Ohio Chamber of Commerce. "We must now quickly move to legislatively confront a number of the underlying issues in the workers' compensation system that drive the costs so we can once again have a workers' compensation system that is a beacon to attract new business to Ohio and help our existing companies flourish."
Medical costs have exploded in the past four years, necessitating an increase in premium rates. Since 1999 the cost of hospitalization has increased 68 percent while drug costs have spiked 104 percent. The premium rate increase of 9 percent, on average, will go into effect for the July 1, 2003, to June 30, 2004, policy year, with the first bill due February 2004. Despite the increase, premium rates in Ohio will remain 34 percent lower than they were in 1995.
Ohio's employers will be responsible for paying 100 percent of their premiums for only the second time since 1995. Between 1996 and 2003, BWC returned more than $9.3 billion in surplus funds to Ohio employers in a series of one-time dividends. Much of the surplus was generated through higher-than-expected returns on investments, as BWC outperformed 93 percent of public funds across the country over the past seven years.
However, slower investment growth, combined with awarding dividends to employers, reduced the surplus. While the fund remains 100-percent reserved, it no longer possesses a significant surplus that would allow for another dividend.
"Although unpleasant, these costs should not be a surprise," Conrad added. "We have warned employers that dividends are unpredictable, and employers should not budget for them. As the economy improves, I'm hopeful that BWC will be in a position to once again award a dividend."
To lessen the immediate financial impact, BWC will allow employers to participate in a 50/50 payment option program, which enables Ohio businesses to pay only 50 percent of their premium costs in August. Companies will then be billed the remaining 50 percent in November.
The decision to raise rates "is unpleasant but was not unexpected. In this changing economy, and in the face of rising health-care costs, we must work together to bring change to the workers' comp system," said Jack Fisher, executive vice president of Ohio Farm Bureau Federation.