North Dakota Employers’ Workers’ Comp Bills Likely to Rise

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Eight months after North Dakota voters gave Gov. John Hoeven the final word on state workers’ compensation rates, employers’ insurance bills are likely to rise as a consequence of the recent bleak market for investments.

Hoeven said he has adopted an advisory board’s recommendation that the Workforce Safety and Insurance agency forego dividend credits on business’ insurance bills during the 2009-2010 billing period.

The dividends have knocked almost $274 million from insurance costs for businesses in the last four years, WSI figures show. They reduced costs by $97.5 million in the current year, cutting employers’ bills by as much as 62 percent.

The agency sent a letter to policyholders in early April, warning them about the possible loss of dividend credits during their next budget year, and has been taking other steps to spread the word, said Bryan Klipfel, WSI’s director. The agency also is advertising safety measures that may reduce insurance costs.

“We have been trying to forewarn them that this may be coming,” Klipfel said. “I guess I’m not sure what else we can do … I suppose once the businesses get their premiums and they see that there’s not the dividend on there, we may get some calls.”

A new insurance rate schedule that takes effect July 1 will decrease average rates by 5 percent, with a maximum possible increase of 10 percent, the agency says. The largest allowable rate reduction is 20 percent.

However, thousands of businesses will see an increase in their bottom-line bill for coverage, even if their rates remain stable or decline slightly.

One reason is that the new rates will be applied to more payroll. At present, a business’ workers compensation coverage rates are applied against each worker’s first $22,100 of annual earnings. During the 2009-2010 budget year, insurance payments will be calculated on a worker’s first $23,700 of wages.

For example, the insurance rate for a restaurant worker will remain at $1.50 for every $100 of each worker’s wages next year, Workforce Safety and Insurance tables show. The restaurant owner’s maximum insurance bill for each employee, however, will rise 7.2 percent, from $331.50 to $355.50, because the rate is applied to a higher wage base.

More significant is the loss of dividend credits, which have been financed by surpluses in the Workforce Safety and Insurance investment fund. The dividends have been applied against companies’ insurance bills, although they could not be reduced below a $250 annual minimum set by state law.

Hoeven agreed with the advisory board’s decision last week that WSI’s investment surplus was not large enough to justify a dividend. Board members decided against a $9 million dividend, which would have reduced insurance bills by about 1.2 percent.

Hoeven said he hopes WSI will be able to resume dividend payments as the economy recovers.

“We’ve been able to pay large dividends in the past, and this has helped our economy,” the governor said.

Until recently, Workforce Safety’s board of directors has had the final word on whether dividend credits should be distributed to businesses. North Dakota voters decided last November to make the board into an advisory panel and give the governor authority to set workers compensation rates and hire the agency’s director.

Workforce Safety and Insurance is North Dakota’s only provider of workers compensation coverage, which provides medical, wage and rehabilitation benefits to employees who are injured on the job.

North Dakota businesses are required to buy the insurance, which covers almost 20,000 employers. The new rates are expected to bring in $156 million from July 1 through June 30, 2010; the current rate schedule brought in almost $143 million, according to WSI estimates.

Russ Hanson, executive vice president of the Associated General Contractors of North Dakota, said he had not heard much talk yet about the loss of dividend credits. But after the new round of insurance bills goes out, “I expect to hear some calls when people get a little bit of sticker shock,” Hanson said.

“The optimistic thing is, we had a horrible, horrible, historically horrible stock market, which affected the reserves, and there still was discussion about a dividend,” Hanson said. “That makes me feel optimistic, personally, that if the stock market gets back on track, that maybe (dividends) will be reinstituted in future years.”