• Increase Text Icon
  • Decrease Text Icon
  • Email Icon
  • Printer Icon
You are here: www.tdi.texas.gov . reports . wcreg . multemp-sif

The Multiple Employment Provision of HB 2600

Research and Oversight Council

on Workers' Compensation

Malcolm K. Sparrow, "Fraud Control in the Health Care Industry: Assessing the State of the Art,"

August 2002

Acknowledgments

The Research and Oversight Council on Workers' Compensation (ROC) would like to acknowledge Texas Workers' Compensation Commission staff members Laurie Crumpton, John Casseb and Bob Shipe, as well as Texas House of Representative Committee on Business and Industry Clerk Bonnie Bruce, for their valued assistance and input in the production of this report. The ROC would also like to thank the staff of the Texas Mutual Insurance Company and the State Office of Risk Management for their assistance in validating the benefit durations included in the report.

Xiaohua Lu was the primary designer of the methodology used to construct the multiple employment and SIF forecasts. Jon Schnautz served as the primary author of the report. Amy Lee, Joseph Shields, Teresa Cosper, Dana Baroni, D.C. Campbell, Xiaohua Lu and Scott McAnally provided insightful comments on earlier drafts of the report, and their efforts are much appreciated. Amy Lee and Scott McAnally also provided valuable direction and suggestions throughout each phase of the project. As always, Jerry Hagins is recognized for his fine work in editing, formatting, and producing this final document.

Material produced by the Research and Oversight Council on Workers' Compensation
may be copied, reproduced, or republished with proper acknowledgment.

Contents

Executive Summary ........................................................................................................ 6

Introduction .......................................................................................................................10

I: Legislative History and Construction of Multiple Employment
Provision of HB 2600 ......................................................................................................12

II. Original HB 2600 Article 10 Fiscal Note ...................................................................16

III. Revised HB 2600 Article 10 Fiscal Estimates ........................................................ 23

Revised Multiple Employment Provision Cost Estimates ........................................... 43

Revised Subsequent Injury Fund (SIF) Impact .............................................................. 44

Conclusion ........................................................................................................................ 62

List of Tables

Table 1: Impact of Multiple Employment Provision on Amount of Temporary
Income Benefits Received by Eligible Injured Employees, FY 2002 ............................ 9

Table 2: Overall Cost Estimate of Article 10 of HB 2600, FY 2002-2007 ............ 11

Table 3: Projected Number of Injured Employees Eligible to Claim Additional .............................................................................................................................16

Table 4: Impact of Multiple Employment Benefit on Amount of Temporary
Income Benefits (TIBs) Liabilities for Eligible Injured Employees,
FY 2002 Injuries ................................................................................................................... 18

Table 5: Additional TIBs Liabilities of Article 10 of HB 2600, FY 2002-2007 ............... 20

Table 6: Impact of Multiple Employment Benefit on Amount of Impairment
Income Benefits (IIBs) Liabilities for Eligible Injured Employees,
FY 2002 Injuries ................................................................................................................... 22

Table 7: Additional IIBs Liabilities of Article 10 of HB 2600, FY 2002-2007 ................ 22

Table 8: Additional SIBs Liabilities of Article 10 of HB 2600, FY 2002-2007 .............. 23

Table 9: Additional LIBs Liabilities of Article 10 of HB 2600, FY 2002-2007 ............... 24

Table 10: Additional DBs Liabilities of Article 10 of HB 2600, FY 2002-2007 ............. 25

Table 11: Additional Benefit Liabilities of Article 10 of HB 2600, FY 2002-2007 ......... 26

Table 12: Additional Benefit Liabilities of Article 10 of HB 2600, FY 2002-2007 ......... 27

Table 13: Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007 ................ 29

Table 14: Additional Benefit Liabilities for Article 10 of HB 2600, FY 2002-2007;

Four-year "Learning Curve" Applied to Estimate Actual Utilization ................................................................................................................................. 31

Table 15: Additional Benefit Liabilities for Article 10 of HB 2600, FY 2002-2007;

Three-year "Learning Curve" Applied to Estimate Actual Utilization ................................................................................................................................ 32

Table 16: Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007;

Four-year "Learning Curve" Applied to Estimate Actual Utilization ................................................................................................................................ 33

Table 17: Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007;

Three-year "Learning Curve" Applied to Estimate Actual Utilization ................................................................................................................................ 33

Table 18: Estimated Cumulative Liabilities of Multiple Employment Benefit, .................................................................................................................................................. 35

Table 19: Estimated SIF Income from Death Claims; FY 2002-2007 ............................. 37

Table 20: Estimated SIF Liabilities for LIBs Claims ......................................................... 40

Table 21: Estimated SIF Payments for Non-Multiple Employment

Insurance Carrier Reimbursements; FY 2002-2007 ....................................................................................................................................... 42

Table 22: Projected SIF Revenues, Expenditures, Liabilities, and Year-end Assets -

Full Multiple Employment Utilization ............................................................................................................................... 44

Table 23: Projected SIF Revenues, Expenditures, Liabilities and Year-end Assets -

Four-year "Learning Curve" applied to Multiple Employment Utilization .............................................................................................................................. 45

Table 24: Projected SIF Revenues, Expenditures, Liabilities and Year-end Assets -

Three-year "Learning Curve" applied for Multiple Employment Utilization ............................................................................................................................. 46

Table 25: Projected SIF Revenues, Expenditures, and Year-end Assets -

Full Multiple Employment Utilization ............................................................................................................................. 48

Table 26: Projected SIF Revenues, Expenditures, and Year-end Assets -

Four-year "Learning Curve" applied to Multiple Employment Utilization ............................................................................................................................ 49

Table 27: Projected SIF Revenues, Expenditures, and Year-end Assets -

Three-year "Learning Curve" applied to Multiple Employment Utilization ............................................................................................................................ 50

EXECUTIVE SUMMARY

One of the primary goals of the Texas workers' compensation system is to compensate injured employees for lost wages through the payment of income benefits. The weekly amount of income benefits an injured employee receives is based largely on that employee's pre-injury Average Weekly Wage (AWW). Since the major Texas workers' compensation system reform in 1989, income benefits for injured employees have been calculated based only on the wages earned at the job where they are injured. Over the ensuing years, some policymakers have shown an interest in how this method of calculating the AWW and resulting benefit levels might impact injured employees who rely on income from more than one job, but are compensated only for lost wages from the job where the injury occurs.

During the 77 th Legislative session in 2001, a proposal allowing injured employees to claim wages from any employment, rather than just their at-injury employment, won approval. This proposal - Article 10 of House Bill (HB) 2600 - allows an injured employee to claim any IRS-reportable wages toward the calculation of his or her AWW. The statutory change was effective July 1, 2002 and incorporated what is often called a "multiple employment" provision into the Texas workers' compensation system.

Since allowing injured employees to claim wages from more than one job toward the calculation of their income benefits would lead to an increase in the amount of benefits paid in the workers' compensation system, cost and funding of the multiple employment provision was a concern for Texas workers' compensation system stakeholders.

At the time HB 2600 was being considered in spring 2001, the staff of the Research and Oversight Council on Workers' Compensation (ROC) was asked to estimate the amount of the additional benefits available based on multiple employment. Since then ROC staff has updated these cost estimates to incorporate much more detailed and realistic assumptions than could be made in the brief time allowed during a legislative session.

This report describes the original methods used in ROC's original cost estimates and the resulting projections, along with those for the revised cost estimates produced in summer 2002. These revised projections should help better inform policymakers and system stakeholders about not only the cost of additional benefits available based on the multiple employment provision, but also the impact of the provision on the Subsequent Injury Fund (SIF). The SIF is a special, dedicated state fund managed by the Texas Workers' Compensation Commission (TWCC) and tied to the multiple employment provision because insurance carriers are allowed to claim reimbursement from the SIF for additional benefits paid based on multiple employment. The new projections represent the first SIF forecast since the passage of HB 2600, and are also intended for use by TWCC in producing future actuarial analyses.

ROC's original HB 2600 Article 10 fiscal note estimates involved projections of the number of injured employees eligible to claim additional benefits based on multiple employment, the amount of additional benefits these employees would be able to claim, and the duration these additional benefits would be received. The original estimates used a calculated projection for the additional Temporary Income Benefits (TIBs, the most common type of income benefit in the workers' compensation system) that would be paid along with a 10 percent escalation of this amount to account for other income benefit costs.

Two general conclusions could be drawn based on the original ROC projections:

The same basic methods were used to produce ROC's revised cost estimates for multiple employment; however, these revised estimates involved more data-based assumptions, updated system data, and calculated projections for each benefit type, rather than just TIBs. The results are that the overall projected annual liabilities for the multiple employment provision are significantly higher than in the original estimates - between $21.6 million and $24.2 million per year.

This amount of additional liability assumes that the multiple employment provision will be used by all eligible injured employees - probably not the most likely model for actual utilization. Therefore, as part of ROC's revised cost estimates, two new scenarios (one utilizing a four-year "learning curve" and another utilizing a three-year "learning curve") were created to estimate the impact of the multiple employment provision based on more realistic models of benefit utilization. Under these models, the annual liabilities for the new provision would rise steadily over the six years of the fiscal note, from about $350,000 in FY 2002, to $5-8 million in FY 2003, to about $17.5 million in FY 2007.

In the revised projections, ROC also considered annual costs of the additional benefits based on multiple employment, rather than just annual liabilities . Actual costs per year are smaller, since the liability estimates reflect all payments over the life of a claim. Costs per year can also be projected with consideration of the four- and three-year learning curve scenarios. In these projections, the annual costs of the new provision range from about $100,000 in FY 2002, to $3-6 million in FY 2003, to about $18 million in FY 2007.

The ROC's original fiscal note did not project an impact on the SIF separate from the overall system cost estimates. The revised fiscal note, however, examined each aspect of the SIF's revenues, expenditures and liabilities to produce forecasts for the SIF through FY 2007.

In all SIF projections, ROC assumed appropriate levels of reserves to pay the fund's original and primary obligation - the payment of Lifetime Income Benefits (LIBs) in second-injury claims. ROC also considered other factors affecting the SIF's balance, including the reimbursement of insurance carrier payments of benefits based on overturned TWCC interlocutory orders or decisions, multiple employment-based reimbursements, and SIF revenue, which is paid by insurance carriers in death claims in which the deceased employee has no beneficiary, as well as the SIF's interest income.

ROC also considered several possible scenarios for the SIF. Some of these focused on the potential liabilities of the SIF for reimbursements based on multiple employment. Such scenarios indicated that, assuming full utilization of the multiple employment provision by eligible injured employees, the potential liabilities of the SIF related to the provision could exceed the available assets of the fund by the end of FY 2003. Under the four- or three-year "learning curve" scenarios, however, this would not occur until FY 2004 or 2005.

However, since the SIF will only reimburse insurance carriers for multiple employment-based benefits after these benefits have been paid - not in advance - the projected annual costs to the SIF due to multiple employment are much lower than the potential liabilities. Under the cost-based projections, the SIF would exhaust its available assets to make reimbursements sometime in FY 2005, assuming full utilization of the multiple employment provision. Under the more realistic four- or three-year "learning curve" scenarios, the SIF would not run out of available assets to make multiple employment-based reimbursements until sometime in FY 2007, or shortly thereafter.

The projected liabilities for the new multiple employment provision are somewhat higher in the new ROC estimates than in the original fiscal note. However, consideration of other factors not included in the original estimates (such as the July 1, 2002 effective date for the provision, and the fact that not all eligible employees are likely to claim the benefit) would make the liabilities through FY 2007 very similar to those in the original fiscal note.

In addition to liabilities, the new estimates include projections of the annual costs to the workers' compensation system and to the SIF based on the multiple employment provision. These cost-based projections more closely reflect the actual impact on the SIF based on the multiple employment provision, since carrier reimbursements will only be made after additional benefits are paid and submitted to TWCC, not in advance, as the liability model assumes. Also delaying the impact on the SIF of additional costs due to multiple employment is the reimbursement schedule TWCC plans to employ, which would not make any multiple employment-based benefit reimbursements until October 2003 (early in FY 2004).

Assuming full multiple employment utilization, these projections indicate that the SIF would run out of available assets to make reimbursements sometime in FY 2005. Under the more realistic four- or three-year "learning curve" scenarios, this would occur in FY 2007. In fact, under the four-year model, the SIF might not reach this point until FY 2008.

It should also be noted that Article 10 of HB 2600 gave TWCC two additional tools to use in making reimbursements based on multiple employment. One of these allows the SIF to make partial payments to carriers for multiple employment-based reimbursements if an actuarial analysis indicates an inadequacy in funding; another allows TWCC to increase the workers' compensation maintenance tax based on a similar finding. None of the scenarios shown for the SIF assume any partial payments or increases in the maintenance tax, but rather focus on how long the SIF might remain a viable source of multiple employment reimbursements based only on its current funding and assuming that all requests for reimbursement are paid in full.

The implications for the SIF based on the revised estimates are only slightly different from those suggested at the time HB 2600 was passed. It still appears that the SIF is a viable short- and perhaps medium-term funding mechanism, and that the fund might sustain reimbursements even slightly longer than was suspected during the 2001 Legislative session - but likely not one that can sustain reimbursements on an ongoing, long-term basis.

Introduction

One of the primary goals of the Texas workers' compensation system is to compensate injured employees for lost wages through the payment of income benefits. The weekly amount of income benefits an employee receives is based on that injured employee's pre-injury Average Weekly Wage (AWW). The amount of weekly benefits an injured employee may receive are also limited by statutory caps.

Since the major Texas workers' compensation system reform in 1989, income benefits for injured employees have been calculated based only on the wages earned at the job where they are injured. Employees who rely on income from more than one job, and who may be physically unable to work at any of their jobs as a result of an on-the-job injury, could be placed at a disadvantage under this arrangement, since their income benefits are calculated based only on a portion of their overall income.

Over the ensuing years, some policymakers have shown interest in how this feature of the workers' compensation system may impact injured employees with more than one job. This interest led to a statutory change in 2001, through Article 10 of House Bill (HB) 2600 (77 th Legislature), to allow injured employees to claim wages from more than one job toward the calculation of their AWW, which is used to calculate the amount of their income benefits. This change was effective July 1, 2002, and incorporated what is often called a "multiple employment" provision into the Texas workers' compensation system.

This report tracks the implementation of the multiple employment provision, focusing on the potential utilization and cost of this new feature of the system and updating previous fiscal estimates compiled by the Research and Oversight Council on Workers' Compensation (ROC). This is significant not only in estimating the system costs of the additional benefits available under the multiple employment provision, but also in estimating its impact on the Subsequent Injury Fund (SIF), a dedicated state fund to which it is tied through a provision of HB 2600 that allows for insurance carrier reimbursements of multiple employment-based income or death benefits. Specifically, insurance carriers may be reimbursed by the SIF for the cost of additional income or death benefits paid based on wages other than those from the job where the injury occurred. The viability and management of the SIF is the focus of an interim research charge of the House Committee on Business and Industry, which reviews most workers' compensation-related legislation for the Texas House of Representatives.

This report contains three sections:

1. This introduction, including a brief history of the multiple employment provision in Texas and the changes made through recent legislative action;

2. Discussion of the ROC's original fiscal estimates on the cost of additional income benefits available based on the multiple employment provision, prepared in spring 2001 during the 77 th Legislative session to inform policymakers about the potential cost impact of Article 10 of HB 2600; and

3. A revised set of cost estimates for the multiple employment provision, as well as a projection of the revenues, expenditures and liabilities of the SIF for fiscal years 2002 through 2007.

I:

The legislative changes made by Article 10 of HB 2600 were not the first proposed in Texas related to multiple employment. During the 76 th Legislative session in 1999, Representative Scott Hochberg proposed HB 634, a bill that would have made the Average Weekly Wage (AWW) of an employee with multiple employment equal to the total wages (from all jobs) earned during the 12 months preceding the date of injury, divided by 50. This would have mirrored language found in Texas Labor Code Section 408.043, which pertains to the calculation of the AWW for seasonal employees (those whose employment is cyclical and does not continue throughout the year). Although no formal cost estimate was prepared for this bill, workers' compensation system stakeholders and policymakers understood that an expansion in benefits of this type would represent a significant cost increase for the system, and largely as a result of these concerns, HB 634 did not pass.

Interest from some policymakers and organizations representing injured employees continued on the multiple employment issue, and during the 77 th Legislative session in 2001 Representative Hochberg introduced two bills related to multiple employment.

One of these proposals, HB 2613, was similar in construction to HB 634 from the previous session. It allowed injured employees to claim wages from multiple jobs by making the employee's AWW (for purposes of calculating workers' compensation income benefits) equal to the sum of the AWWs calculated for each job. Rather than using the last year's employment history to calculate the AWW as did HB 634, HB 2613 looked at the 13 weeks prior to the injury, in a similar manner to the calculation of the AWW for non-seasonal full- or part-time employees. It also added a requirement that any wages the employee wishes to claim from other employment must be reportable for federal income tax purposes, placing a greater "burden of proof" on the injured employee in claiming additional wages.

The second bill, HB 2612, was a less expansive proposal that would have allowed wages from multiple employment to be considered toward an injured employee's AWW only after the injured employee had received Temporary Income Benefits (TIBs) for 13 weeks or more. Beyond 13 weeks of TIBs, as well as for any and all Impairment Income Benefits (IIBs), Supplemental Income Benefits (SIBs), Lifetime Income Benefits (LIBs), and Death Benefits (DBs), the bill would have allowed multiple employment to be considered in the AWW in exactly the same fashion as HB 2613. Under this proposal, injured employees who were absent from work for relatively short durations (less than 13 weeks), and did not receive another type of income benefit beyond TIBs, would have been compensated based only on their wages from the job where the injury occurred. This bill also added the IRS-reportable wage "burden of proof" requirement.

In an effort to mitigate employer concerns about the cost of additional income benefits based on the new provision, both HB 2612 and HB 2613 allowed insurance carriers who would pay additional income benefits under the proposed new statute to request and receive reimbursement for some of these additional benefits. Specifically, the bills allowed carriers to claim reimbursement from the Texas Workers' Compensation Commission's (TWCC's) Subsequent Injury Fund (SIF) for any income or death benefits paid as a result of an injured employee's employment with a non-subscriber to the Texas workers' compensation system (i.e., an employer who does not purchase workers' compensation coverage and therefore does not pay premiums for that coverage).

At the same time these proposals were being analyzed, HB 2600, an omnibus bill related chiefly to medical management in the workers' compensation system, was also introduced. Before HB 2600 was approved in the House, an Article 10 was added to the bill, incorporating the substance of HB 2613 with one significant difference. Rather than allowing carriers to receive SIF reimbursement for only non-subscriber wage-based benefits, Article 10 of HB 2600 allowed SIF reimbursement for any additional income or death benefits based on multiple employment. This change not only significantly increased the potential liability of the SIF for covering the cost of the new multiple employment provision, but also allowed employers and insurance carriers to offset more of the additional benefit costs by providing a funding source through the SIF. In its final form, Article 10 of HB 2600 also included the following elements related to multiple employment and/or the SIF:

· A required actuarial analysis of the SIF by TWCC, in an effort to track the viability of the fund, with a report to ROC on the SIF's financial condition required twice a year;

· A provision stipulating that, if the projected liabilities of the SIF are forecasted to exceed its available assets according to the actuarial analysis, TWCC has the authority to trigger an increase in the maintenance tax to provide additional funding;

· A provision that allows TWCC to make partial payments of carrier requests for reimbursement of multiple-employment based benefits, also in the case of a projected inadequacy in funding based on the actuarial analysis;

· A provision allowing TWCC to prioritize the liabilities of SIF; and

· Addition of two other new liabilities for the SIF -- one allowing carrier reimbursements of payment for certain pharmaceutical benefits, and one setting aside up to $1.5 million in SIF funds for feasibility studies related to another provision of HB 2600. These will be discussed in more detail later in this report.

As had HB 2612 and HB 2613, Article 10 of HB 2600 left the "burden of proof" for claiming and proving up wages from other employment strictly on the injured employee. One significant change was made to the multiple employment provision in HB 2600 before the bill won Senate approval and was signed into law by the Governor. The effective date of the new multiple employment provision, which was September 1, 2001 in the original version, was delayed to July 1, 2002.

The next section of the report describes the original fiscal note calculation for Article 10 of HB 2600.

At the time HB 2600 was being considered, the ROC was asked to prepare an estimate of the cost of the new multiple employment provision for the next six fiscal years (FY 2002-2007). This was apparently the first formal attempt in recent years to calculate the potential cost of a multiple employment provision, and it involved answering several important questions:

1. How many injured employees in Texas would receive additional benefits based on the multiple employment provision?;

2. What amount of additional benefits would be paid to these eligible injured employees?; and

3. What would be the impact on the SIF from insurance carrier reimbursements of benefits based on multiple employment?

These general questions, in turn, required examination of a number of more specific issues. Given the short turnaround time for a fiscal note request during the legislative session, ROC was required to make some broad assumptions and was not able to go into as much detail as will be described later in the revised projections.

In order to estimate the number of injured employees in Texas who may be affected by the multiple employment provision, ROC considered several pieces of information. First was that, according to estimates of the national rate of multiple employment, 5.8 percent of employees have more than one job. Based on data from the December 2000 TWCC System Data Report (the most recent available at the time of the calculation) it was assumed that 75,000 injured employees each year would receive Temporary Income Benefits (TIBs), by far the most common of the four income benefit types in the workers' compensation system. When the 5.8 percent multiple employment estimate was applied to the projected universe of TIBs claimants (75,000), the result indicated that about 4,386 injured workers per year would be eligible for additional TIBs under the multiple employment provision of Article 10 of HB 2600. It was assumed that this number of eligible employees per year would be constant throughout the six years of the fiscal note.

For calculation purposes, these 4,386 eligible employees were further broken down into three different employment groups:

1. Those who work two full-time jobs;

2. Those who work two part-time jobs; and

3. Those who work a full-time and a part-time job.

A smaller number of other employees work more than two jobs, but for calculation purposes, only the more common arrangements described were considered.

Other assumptions for these calculations included the following:

· The average duration of TIBs is 11.3 weeks and will remain constant;

· A full-time job consists of 40 hours per week;

· A part-time job consists of 20 hours per week;

· The AWW in FY 2002 will be $473;

· The AWW for a part-time job is equal to one-half of the AWW for a full-time job; and

· An employee's risk of being injured is equal at all of his or her jobs - meaning that, because the employee is on the job twice as much at a full-time job as a part-time job, the employee is twice as likely to be injured on the full-time job.

Dividing the estimated 4,386 eligible employees into these three employment groups was necessary because the additional costs for the multiple employment provision will vary for each group. Some groups, in particular those employees with two full-time jobs, will find their additional income benefits under the multiple employment provision limited by the statutory cap on TIBs during some or all of the years of the fiscal note.

According to data collected by the Bureau of Labor Statistics (BLS), 4 percent of employees with more than one job have two full-time jobs; 27 percent have two part-time jobs; and 69 percent have one full-time and one part-time job. Since employees in this third (and largest) group may be injured on either their full or part-time job, ROC staff subdivided this group into two subgroups - employees with both a full-time and part-time job who are injured on their full-time job, and employees with both a full-time and part-time job who are injured on their part-time job. This was necessary because the additional income benefits available to these employees will vary depending on where the injury occurs. It was assumed that twice as many injured employees in the full-time/part-time job group will be injured on a full-time job as on a part-time job. Table 1 shows the estimated impact for employees in each group, based on the assumptions stated above.

(Original HB 2600 Article 10 fiscal note)

Type of Multiple Employment Estimated # of Eligible Employees Additional TIBs Per Employee Total Additional TIBs
Two full-time jobs 175 $2,361.70 $413,298
Two part-time jobs 1,184 $1,875.80 $2,220,947
One full-time, one part-time (hurt on full time) 2,018 $1,875.80 $3,785,364
One full-time, one part-time (hurt on part time) 1,009 $3,740.30 $3,773,962
TOTAL 4,386 $2,324.16 $10,193,571

Source: Research and Oversight Council on Workers' Compensation, 2002.

Based on these assumptions, the additional TIBs liabilities based on the multiple employment provision due to injuries in FY 2002 would be about $10.2 million. The same methodology and assumptions were also used to calculate TIBs impact for claims in the next five fiscal years. The results are shown in Table 2, along with the overall fiscal note calculation. In general, the TIBs impact rises by about $400,000 per year until FY 2007, when the increase is somewhat smaller (about $200,000).

It was generally accepted at the time the original fiscal estimates were created for Article 10 of HB 2600 that the additional TIBs paid would represent the largest new cost to the system among the benefit types. Producing an estimate of the additional cost for the other types of income benefits and for death benefits is also more difficult, since these benefits occur less frequently, their eligibility requirements are more complex, and their durations are subject to wider fluctuations.

Because of these factors and the time constraints for the production of the original fiscal note, the financial impact of multiple employment on IIBs and SIBs was roughly estimated at 10 percent of the annual TIBs impact. No additional cost impact was included in the original fiscal note for LIBs or DBs.

Based on these assumptions, the overall cost estimate of the new multiple employment provision in the Texas workers' compensation system for injuries occurring between FY 2002 and 2007 was estimated at about $74.0 million. Table 2 summarizes this calculation.

Overall Cost Estimate of Article 10 of HB 2600, FY 2002-2007

(Original fiscal note)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees affected 4,386 4,386 4,386 4,386 4,386 4,386
Projected max. TIBs rate (cap) $540 $551 $562 $573 $584 $595
Projected AWW $473 $492 $512 $533 $554 $576
Average number of weeks workers receive TIBs 11.3 11.3 11.3 11.3 11.3 11.3
Estimated additional TIBs liabilities for injuries occurring in fiscal year $10.3 mill. $10.6 mill. $ 11.0 mill. $11.4 mill. $11.8 mill. $12.0 mill.
Estimated additional IIBs and SIBs liabilities for injuries occurring in fiscal year $1.03 mill. $1.06 mill. $1.1 mill. $1.1 mill. $1.2 mill. $1.2 mill.
System Impact:
Estimated additional liabilities for injuries occurring in fiscal year
$11.4 mill. $11.7 mill. $12.1 mill. $12.6 mill. $ 13.0 mill. $13.2 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

Note: The state's fiscal year (which is used for these estimates) runs from September 1 through August 31. For example, FY 2002 started on Sept. 1, 2001 and ends on Aug. 31, 2002.

Impact on the Subsequent Injury Fund (SIF)

All additional income benefits paid to injured employees under the new multiple employment provision of HB 2600 are reimbursable from the SIF. The SIF receives funding in cases of a compensable death in which there is no beneficiary or in which all beneficiaries cease to be eligible. In cases where no beneficiary exists, the insurance carrier for the claim is required to pay an amount equal to 364 weeks of death benefits into the SIF. The SIF's revenue is also supplemented by interest income.

Prior to the passage of HB 2600, the SIF was liable for two primary categories of expenditures. These included the payment of LIBs for which the injured employee qualified as the result of a "subsequent" or "second" injury, and reimbursement of overpaid benefits made as a result of overturned TWCC interlocutory orders or decisions. The SIF will be discussed in more detail in a later section of this report.

Under HB 2600, three additional liabilities were added to the SIF:

· Reimbursement of insurance carrier payments based on multiple employment;

· Reimbursement of insurance carrier payments for pharmaceuticals provided to an injured employee during the first seven days following an injury, in cases where the injury is later determined to be non-compensable; and

· Payment of up to $1.5 million for an assessment of the feasibility of regional workers' compensation health care networks.

Reimbursement of insurance carrier payments related to multiple employment is by far the largest of these new liabilities. For the purposes of the HB 2600 fiscal note, no separate calculation was performed to estimate the impact on the SIF; it was assumed that all of the additional benefits paid relevant to the multiple employment provision would be reimbursed to carriers, and reimbursed in the same fiscal year. Therefore, the annual totals shown in Table 2 also show the annual drain on the SIF from the new benefit, as projected in the original fiscal note.

The multiple employment provision included in Article 10 of HB 2600 was a new feature in the Texas workers' compensation system and therefore difficult to predict in its effects. However, two general conclusions could be drawn from the original fiscal note:

1. The addition of a new multiple employment provision would add between $11 and $13 million a year in system liabilities - not an insignificant amount; and

2. The SIF, with an approximate $25 million balance as of the passage of HB 2600, would likely be a sufficient short-term source for funding the new provision by reimbursing carriers who pay additional benefits based on it, but would not be a sufficient long-term source.

The next section of the report details the revised ROC estimates of the cost and SIF impact of the multiple employment provision, produced in summer 2002.

Background

At the time the original HB 2600 Article 10 fiscal note was produced, ROC indicated that it planned to devote a research project prior to the 2003 Legislative session to monitoring the implementation of the new multiple employment provision. ROC also indicated that it would examine the initial independent actuarial analysis of the SIF (released by TWCC in spring 2001, prior to the adoption of HB 2600) in order to better evaluate the impact of the new liabilities on the SIF. When the original fiscal note was prepared, it was built on the assumption that the new multiple employment provision would be effective September 1, 2001; as noted, however, the actual effective date was later set at July 1, 2002. In addition, TWCC plans to release the first actuarial analysis of the SIF under the new Article 10 requirement in late 2002.

Given this additional time prior to the implementation of the multiple employment provision, the ROC in February 2002 refocused its original plan to examine the effects of the statutory change. It began to examine the multiple employment estimates in more detail and to evaluate the available information on the SIF, in order to provide updated estimates for the next legislative session and help TWCC's actuary build a basis for future projections.

This section of the report describes the revised estimates of the impact of the multiple employment provision and its potential impact on the SIF, along with examining the overall SIF forecast. Revised estimates of the cost of the multiple employment provision are described first, followed by the analysis of the SIF.

Revised Multiple Employment Provision Cost Estimates

Number of Eligible Employees

As with the original fiscal note, the revised estimates for both benefit cost and SIF impact were calculated for the six fiscal years from 2002 to 2007. The same basic questions involving the population of injured employees eligible to receive additional benefits and the types and costs of the new benefits available to these employees were re-examined and incorporated into the revised estimates.

To estimate the number of injured employees who would be eligible, ROC used BLS data on the percentage of multiple employment in Texas from 1994 through 2000 to project future percentages of multiple employment specific to this state. This is in contrast to the original fiscal note, which relied on the national multiple employment estimate. The projection for Texas indicated that about 4.85 percent of employees in the state have more than one job in 2002 (an estimate slightly lower than the national multiple employment estimate). For calculation purposes, ROC again assumed that this percentage from the overall workforce would also hold true for the population of injured employees receiving income benefits.

However, unlike in the original fiscal note calculations, the percentage of multiple employment was not assumed to remain constant over the six-year period. Trends in the percentage of multiple employment appeared to show a general downward pattern over time, so the rates used in the estimates included a projected downward adjustment (from 4.85 percent of employees in 2002 to 4.54 percent in 2007).

The projected percentage of multiple employment for each year was then applied to the projected number of injured employees who would qualify for income benefits or death benefits in that year. The projection of employees receiving benefits was based on historic data taken from the most recent TWCC System Data Report for each benefit category. Table 3 shows the projected percentage of multiple employment for fiscal years 2002 to 2007, and the resulting number of injured employees estimated to be eligible for additional benefits based on the multiple employment provision in each year. This is calculated by multiplying the projected number of employees receiving income or death benefits by the projected percentage of multiple employment.

Also shown in Table 3 is a projection of the number of instances in which an injured employee will claim any additional benefit based on multiple employment. This number differs from the projection of eligible employees because it includes each instance in which a new type of benefit is claimed. For example, the projection of eligible employees counts each employee claiming any additional multiple employment-based benefits once ; the other projection counts an employee who receives TIBs, IIBs and SIBs, for example, three times (one for each type of benefit claimed). The latter numbers are very useful in projecting the overall additional cost of the multiple employment provision in the revised projections, as detailed later in the report, since additional benefit costs are calculated for each type of benefit, and an injured employee may receive more than one benefit type.

(Revised Cost Estimates)
Fiscal Year Percentage of Multiple Employment Employees Eligible for Multiple Employment. Benefit Claims by Multiple Employed
2002 4.85 4,532 6,045
2003 4.80 4,481 5,977
2004 4.72 4,411 5,884
2005 4.65 4,342 5,792
2006 4.58 4,280 5,709
2007 4.54 4,236 5,651
TOTAL 26,282 35,058

Source: Research and Oversight Council on Workers' Compensation, 2002.

Additional TIBs Costs

TIBs are by far the most common type of income benefit in the Texas workers' compensation system. Generally, TIBs are paid to injured employees who are off work due to an on-the-job injury for at least seven days, until the employee returns to work or reaches Maximum Medical Improvement (MMI) - a point at which further recovery is not medically expected - or for two years from the date income benefits begin, whichever comes first. TIBs are paid at the rate of 70 percent of the employee's AWW during the 13 weeks prior to injury.

As in the original fiscal note, the population of eligible injured employees was divided into the employment groups described in Table 1. The number of employees projected to receive additional TIBs in each group was then multiplied by the average duration of TIBs and the additional weekly benefit amount for which employees in each group would be eligible (based on historical System Data Report data), with consideration of the effects of the statutory TIBs cap. The results are presented in Table 4.

Impact of Multiple Employment Benefit on Amount of Temporary Income Benefits (TIBs) Liabilities for Eligible Injured Employees, FY 2002 Injuries
Type of Multiple Employment Estimated # of Eligible Employees Additional TIBs Per Employee Total Additional TIBs
Two full-time jobs 191 $3,445.10 $659,267
Two part-time jobs 1,081 $4,214.75 $4,550,308
One full-time, one part-time (hurt on full time) 1,820 $3,445.10 $6,271,309
One full-time, one part-time (hurt on part time) 910 $5,607.45 $5,106,009
TOTAL

4,002 $4,144.65 $16,586,893

Source: Research and Oversight Council on Workers' Compensation, 2002.

These estimates differ significantly from those produced for the original fiscal note. While the total estimated number of eligible employees is somewhat lower than in the original fiscal note (4,002 compared to 4,386), the estimated additional TIBs per eligible employee is much higher (an aggregate $4,145 compared to an aggregate $2,324 in the original estimates). The major reason for this increase is an increase in the duration of TIBs estimates used in the revised projections compared to the original fiscal note. In the original fiscal note, a duration of 11.3 weeks - the average reported in the December 2000 TWCC System Data Report , the most recent available at the time - was used. In the revised estimates, the December 2001 System Data Report TIBs duration of about 18.3 weeks was used.

Another distinction between the original and the revised cost estimates is in the calculation of full-time and part-time benefit amounts. In the original fiscal note estimates, the additional weekly TIBs available under the multiple employment provision for a full-time job were assumed to be equal to the AWW projection multiplied by 70 percent (the rate at which TIBs are computed); the weekly benefits for a part-time job were assumed to be equal to one-half this amount. In the revised estimates, benefit amounts for both full- and part-time wages were calculated based on actual benefit data rather than extrapolated based on wage amounts. The result of using the more exact calculation method is that the full-time benefit amount is somewhat different from the original rough estimate, while the part-time benefit amount used in the revised calculation is equal to about 70 percent of the full-time amount, rather than the 50 percent that was assumed in the original estimates.

The projection shown for TIBs costs (and all other benefit costs) for injuries occurring in FY 2002 is significantly lower than in subsequent years, since the new multiple employment provision was effective July 1, 2002, and during only two months of FY 2002 will injured employees actually be able to claim additional benefits.

Table 5 shows the estimated number of employees and additional TIBs benefits payable if all multiple employment-eligible employees claimed those benefits over the six-year period, and shows only one-sixth of the impact shown in Table 4 to account for the delayed effective date in FY 2002.

Additional TIBs Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 667 3,956 3,895 3,834 3,779 3,740
Projected max. TIBs rate (cap) $536 $541 $550 $564 $576 $584
Average TIBs rate (full-time job) $348 $359 $369 $380 $391 $401
Average number of weeks employees receive TIBs 18.3 18.3 18.3 18.3 18.3 18.3
Estimated additional TIBs liabilities for claims occurring in fiscal year $2.8 mill. $16.3 mill. $16.2 mill. $16.3 mill. $16.3 mill. $16.2 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

In addition to the higher cost projections in the revised fiscal note - largely driven by the longer durations - there is another interesting difference between the two estimates. Unlike in the original estimates, in which the liability of the additional TIBs incurred each year increased across the years of the fiscal note, the revised estimates show a slight decrease in liabilities per year over time. This is due to the decrease in the number of employees projected to qualify for the multiple employment provision over time, based on the apparent decrease over time in the percentage of multiple employment in the workforce, as described previously in Table 3.

Additional IIBs Costs

Some injured employees - a smaller but still significant number compared to those who receive TIBs - will qualify for Impairment Income Benefits (IIBs). These benefits are paid on claims in which an injured employee sustains some level of permanent impairment as a result of an injury. Because claims in which IIBs are paid occur less frequently, and because it is somewhat more difficult to project what fiscal impact multiple employment will have on these benefits, the original HB 2600 Article 10 fiscal note did not include a calculated IIBs estimate, but rather escalated the additional TIBs estimate by 10 percent to account for both additional IIBs and Supplemental Income Benefits (SIBs).

For the revised estimates, however, additional IIBs cost was calculated in a similar manner to TIBs cost. The eligible population of injured employees was estimated based on the projected number of injured employees receiving IIBs (from TWCC System Data Report historical data) and the BLS estimates of the frequency of multiple employment. The eligible injured employees were then divided into the same employment groups noted previously. The statutory cap on IIBs was also considered, and it limits the additional benefits more severely than does the TIBs cap, since TIBs are capped at the SAWW, while IIBs are capped at 70 percent of that amount. Table 6 shows the projected additional IIBs liabilities for each of the four employment groups for injuries occurring in FY 2002.

Impact of Multiple Employment Benefit on Amount of Impairment Income Benefits (IIBs) Liabilities for Eligible Injured Employees, FY 2002 Injuries
Type of Multiple Employment Estimated # of Eligible Employees Additional IIBs Per Employee Total Additional IIBs
Two full-time jobs 95 $1,296.03 $123,647
Two part-time jobs 537 $3,097.30 $1,665,656
One full-time, one part-time (hurt on full time) 904 $1,296.03 $1,176,197
One full-time, one part-time (hurt on part time) 452 $3,097.30 $1,401,198
TOTAL 1,988 $2,196.53 $4,366,698

Source: Research and Oversight Council on Workers' Compensation, 2002.

As with the TIBs projections, these FY 2002 estimates will not be fully realized due to the July 1, 2002 effective date. Table 7 summarizes the estimated additional IIBs liabilities for injuries occurring from FY 2002 to 2007, assuming that all projected eligible employees receive the benefit, and shows the two-month impact for FY 2002.

Additional IIBs Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 332 1,966 1,936 1,905 1,878 1,859
Projected max. IIBs rate (cap) $375 $379 $385 $395 $403 $409
Projected average IIBs rate (full-time job) $316 $324 $332 $340 $349 $357
Average number of weeks employees receive IIBs 22 22 22 22 22 22
Estimated additional IIBs liabilities for claims occurring in fiscal year $727,783 $4.2 mill. $4.1 mill. $4.1 mill. $4.1 mill. $4.0 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

A much smaller number of injured employees -- roughly 2 percent of those who receive IIBs - qualify for Supplemental Income Benefits (SIBs). Injured employees with impairment ratings of at least 15 percent and who have an ongoing inability to earn their pre-injury wages as a result of their injury may be eligible for SIBs.

In the original estimates, additional IIBs and SIBs costs collectively were estimated at 10 percent of the TIBs estimate; as with IIBs, additional SIBs costs in the revised projections were calculated based on the estimated number of injured employees eligible (based on System Data Report historical numbers) and the projections of the percentage of multiple employment. Eligible employees were also divided into the employment groups described previously. Table 8 shows the estimated additional SIBs liabilities for fiscal years 2002 to 2007.

Additional SIBs Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 6 38 37 37 36 36
Projected max. SIBs rate (cap) $375 $379 $385 $395 $403 $409
Projected average SIBs rate (full-time job) $250 $254 $257 $261 $264 $268
Average number of weeks employees receive SIBs 28 28 28 28 28 28
Estimated additional SIBs liabilities for claims occurring in fiscal year $27,419 $163,952 $164,198 $167,322 $169,074 $170,030

Source: Research and Oversight Council on Workers' Compensation, 2002.

While rare, claims that involve Lifetime Income Benefits (LIBs) or Death Benefits (DBs) are also relatively expensive. Estimates of the cost of these additional benefits paid due to the multiple employment provision were not calculated for the original fiscal note, which focused on the benefit types where the majority of costs were identified (TIBs, IIBs, and SIBs). Estimating LIBs and DBs was further complicated by the complex nature of calculating the durations of these benefits and time constraints related to legislative activity. For the revised estimates, however, these benefits were added to the calculation by applying the BLS frequency of multiple employment to the projected numbers of injured employees who would qualify for each benefit.

Estimated additional LIBs liabilities for injuries occurring in the next six fiscal years are shown in Table 9. Because LIBs are paid for the life of an eligible injured employee, the estimated duration was based on the average age of injured employees receiving LIBs (calculated from actual claim data) and a mortality table used by TWCC in conjunction with the management of the SIF.

Additional LIBs Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 1 8 7 7 7 7
Projected max. LIBs rate (cap) $536 $541 $550 $564 $576 $584
Projected average LIBs rate (full-time job) $374 $394 $414 $434 $454 $475
Average number of weeks employees receive LIBs 1,898 1,898 1,898 1,898 1,898 1,898
Estimated additional LIBs liabilities for claims occurring in fiscal year $519,470 $3.0 mill. $2.9 mill. $2.8 mill. $2.7 mill. $2.6 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

Death benefit claims are also rare and, while not nearly as costly as LIBs claims, still a significant expense because of their duration. Duration of benefits can be for the life of the deceased employee's beneficiary (such as in the case of a surviving spouse who does not remarry), or for some shorter period of time (as in when a beneficiary remarries or dies), in which case the remaining portion of DBs (up to 364 weeks) is paid to the SIF. In no case, however, according to the statute and TWCC rules, should fewer than a total of 364 weeks be paid, including payments to both beneficiaries and the SIF.

Attempts to calculate an average duration for DBs based on the System Data Report or actual claims data, however, did not produce usable results. This could be due to several factors, including the extreme variability in DBs duration and the division of DB payments between beneficiaries and the SIF. After consultation with TWCC staff, ROC staff opted to use a non-calculated estimate of 364 weeks for DBs duration. Estimated additional DBs are shown in Table 10.

Additional DBs Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 2 9 9 9 9 8
Projected max. DBs rate (cap) $536 $541 $550 $564 $576 $584
Projected average DBs rate (full-time job) $435 $450 $464 $479 $494 $508
Average number of weeks employees receive DBs 364 364 364 364 364 364
Estimated additional DBs liabilities for claims occurring in fiscal year $95,550 $543,332 $524,574 $521,874 $513,620 $495,400

Source: Research and Oversight Council on Workers' Compensation, 2002.

Table 11 shows the overall projected impact of the additional income benefits available due to the multiple employment provision of Article 10 of HB 2600. Again, it is important to note that these estimates assume that every eligible injured employee will claim and receive additional benefits under the multiple employment provision.

Also, as noted previously, all cost estimates shown in Table 11 (and all other tables thus far in this section) represent the ultimate additional cost to the workers' compensation system based on injuries that occur in a given fiscal year. The information in Table 11, for example, does not mean that in FY 2003 an additional $24.2 million in benefits will be paid based on the multiple employment provision, but rather that over the life of the claims that occur in FY 2003 for which the provision applies, $24.2 million in additional benefits will be paid. This distinction will be discussed further in the portion of this report examining the impact on the SIF, both in terms of the ultimate liability for injuries that occur in a given year and in terms of actual cash flow from the SIF.

Additional Benefit Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate; Cash Value)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Additional TIBs $2.8 mill. $16.3 mill. $16.2 mill. $16.3 mill. $16.3 mill. $16.2 mill.
Additional IIBs $727,783 $4.2 mill. $4.1 mill. $4.1 mill. $4.1 mill. $4.0 mill.
Additional SIBs $27,419 $163,952 $164,198 $167,322 $169,074 $170,030
Additional LIBs $519,470 $3.0 mill. $2.9 mill. $2.8 mill. $2.7 mill. $2.6 mill.
Additional DBs $95,550 $543,332 $524,574 $521,874 $513,620 $495,400
TOTAL Additional benefit liabilities for claims occurring in fiscal year $4.1 mill. $24.2 mill. $23.8 mill. $23.9 mill. $23.8 mill. $23.4 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

To this point, all calculations shown in both the original and revised cost estimates have been presented on a cash value basis. This means that the amounts of money shown represent the total amounts needed to pay the additional benefits without regard to the duration of time between the date an injury occurs and the date the benefits are paid. This contrasts with a present value calculation, which takes into account the interest that may be earned on the money needed to pay future benefits. In the case of long-term benefits such as LIBs, for example, significantly less money need be set aside to pay future benefits than would be required if all benefits paid over the life of the claim had to be paid up front. In particular for these long-duration benefits, then, the present value may be a more accurate assessment of the true long-term liability for the additional benefits.

Table 12 shows the projected liabilities for each of the benefit types under the multiple employment provision on a present value basis. Note that the overall decrease is about 10 percent per year compared to the cash value projections, driven largely by the reduction in LIBs liabilities on a present value basis.

Additional Benefit Liabilities of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate; Present Value)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Additional TIBs $2.7 mill. $16.1 mill. $16.0 mill. $16.1 mill. $16.1 mill. $16.0 mill.
Additional IIBs $700,482 $4.0 mill. $3.9 mill. $4.0 mill. $3.9 mill. $3.9 mill.
Additional SIBs $23,335 $139,635 $139,845 $142,505 $143,997 $144,811
Additional LIBs $236,515 $1.4 mill. $1.3 mill. $1.3 mill. $1.2 mill. $1.2 mill.
Additional DBs $80,894 $459,991 $444,110 $441,824 $434,836 $419,411
TOTAL Additional benefit liabilities for claims occurring in fiscal year $3.8 mill. $22.1 mill. $21.8 mill. $21.9 mill. $21.9 mill. $21.6 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

In addition to projecting the ultimate additional benefit liabilities for claims that occur during the six years of these cost estimates, ROC also projected the amount of additional benefits that will actually be paid during these six years. These projections are necessary in order to estimate the impact of the additional benefits on the cash flow from the SIF, since insurance carriers will only be able to claim reimbursement from the SIF after the multiple-employed based benefits have been paid, not in advance of payment.

In order to project the actual payout of TIBs, IIBs, SIBs, LIBs and DBs over the six-year period, ROC divided each fiscal year into two-month segments (including one segment for the final two months of FY 2002). The projected claims eligible for multiple employment during a given fiscal year were assumed to be distributed evenly throughout that year. For example, since 3,956 TIBs claims (see Table 5) eligible for multiple employment are projected to occur during FY 2003, one-sixth of this amount, or 659 claims, were assumed to occur during each two-month segment of that fiscal year. The same distribution was assumed for each of the other benefit types.

ROC then calculated (based on actual claims data) a distribution of the duration of time between the date an injury occurs and the date that benefits begin to be paid for each of the five benefit types. This distribution was then applied to the claims projected to occur during each two-month segment.

Once the distribution of benefit beginning dates was calculated for each two-month group and each benefit type, ROC applied the average benefit durations (included in each of the tables projecting costs by benefit type - 18.3 weeks for TIBs, for example) to project the overall payout of the claims. Once payouts during each two-month segment were calculated for each benefit type, the costs were summed to arrive at a total amount of benefits paid for each segment.

Table 13 shows the projected additional cost of the multiple employment provision by fiscal year. The distinctions from the earlier tables showing additional benefit liability are clear. The actual additional costs of the multiple employment provision escalate more slowly, as additional claims are made and earlier claims mature. The duration of benefits also show a significant distinction between the liability- and cost-based estimates. For LIBs, for example, which usually pay out over several decades, the liability for additional benefits is in the millions of dollars for claims between 2002 and 2007; the actual costs during this period, though, are much smaller.

Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007

(Revised Cost Estimate; Cash Value)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Additional TIBs paid $1.1 mill. $15.0 mill. $16.0 mill. $16.2 mill. $16.3 mill. $16.2 mill.
Additional IIBs paid $58,682 $2.1 mill. $3.5 mill. $4.0 mill. $4.1 mill. $4.1 mill
Additional SIBs paid $8 $609 $16,094 $69,306 $135,258 $160,194
Additional LIBs paid $3,905 $198,932 $653,295 $1.2 mill. $1.9 mill. $2.6 mill.
Additional DBs paid $2,791 $74,290 $174,829 $276,620 $379,058 $480,139
TOTAL Additional benefits paid during fiscal year $1.1 mill. $17.3 mill. $20.3 mill. $21.8 mill. $22.7 mill. $23.5 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

As with the previous tables showing benefit liabilities, the annual cost projections assume that all eligible injured employees will apply for and receive additional benefits. Scenarios involving less than 100 percent utilization of the multiple employment provision are described in the next portion of the report.

In estimating the cost of the new multiple employment provision, the calculations described thus far have been based on a number of assumptions. As noted, one significant assumption is that all eligible injured employees will successfully claim and receive additional benefits based on the provision. While this is useful in projecting the maximum additional cost, it is probably not a realistic estimate of the true costs or liabilities. In order to better project the liabilities and costs with consideration for the fact that the provision will not be utilized in all cases, ROC attempted to model multiple employment utilization more accurately considering the following factors and assumptions:

· The "burden of proof" in claiming additional benefits under the new multiple employment provision is placed on the injured employee, and if the employee does not know about, does not apply for, or cannot meet the standards for documenting his or her additional wages (for example, the statutory requirement that the wages be IRS-reportable), additional benefits will not be received;

· Texas' geographic size, relatively low percentage of unionization compared with other large states, and relatively low level of attorney involvement will all tend to work against rapid dispersal of information to injured employees about the new benefit; and

· The multiple employment provision will be utilized by a higher percentage of eligible injured employees over time (i.e., as more employees become aware of the provision and as initial eligibility disputes are resolved), and will peak after about four years at just over 80 percent of the estimated eligible pool of injured employees successfully claiming additional benefits.

The approximate 80 percent cap on utilization is an assumption based on the other factors stated. It includes assumptions that no more than 90 percent of the multiply-employed workforce will ever be informed of the benefit, and that no more than 90 percent of those informed will successfully claim the benefit. The phase-in or "learning curve" period of four years is used based on what is projected to be a fairly steady diffusion of information about the new benefit provision. The actual learning curve model used is based on an epidemiological model, modified to reflect the likelihood of information spreading among the population of potentially eligible injured employees. Table 14 shows the estimated liabilities based on the multiple employment provision with consideration of this four-year learning curve.

Additional Benefit Liabilities for Article 10 of HB 2600, FY 2002-2007;

Four-year "Learning Curve" Applied to Estimate Actual Utilization

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 6,045 5,977 5,884 5,792 5,709 5,651
Estimated % of injured employees informed about ME benefit 10% 23.5% 57.0% 83.9% 89.5% 90%
Estimated # of injured employees informed about benefit 605 1,404 3,356 4,856 5,107 5,083
Estimated # of injured employees successfully claiming benefit (except in FY 2002, equal to 90 percent of those informed) 91 1,263 3,020 4,370 4,596 4,575
Estimated additional benefit liabilities for claims occurring in fiscal year (cash value) $372,123 $5.1 mill. $12.2 mill. $18.0 mill. $19.2 mill. $19.0 mill.
Estimated additional benefit liabilities for claims occurring in fiscal year (present value) $340,009 $4.7 mill. $11.2 mill. $16.6 mill. $17.6 mill. $17.5 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

While the four-year learning curve seems reasonable, it is quite possible that utilization of the multiple employment benefit will increase more quickly (or more slowly). To show the potential cost implications of a more rapid utilization of the multiple employment benefit, ROC also developed a model based on a three-year learning curve. The same maximum (just over 80 percent) was used as in the four-year model. Table 15 shows the three-year learning curve model results.

Additional Benefit Liabilities for Article 10 of HB 2600, FY 2002-2007;

Three-year "Learning Curve" Applied to Estimate Actual Utilization

(Revised Cost Estimate)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of employees eligible 6,045 5,977 5,884 5,792 5,709 5,651
Estimated % of injured employees informed about ME benefit 10% 40.9% 85.7% 90% 90% 90%
Estimated # of injured employees informed about benefit 605 2,441 5,045 5,211 5,138 5,086
Estimated # of injured employees successfully claiming benefit 91 2,197 4,541 4,690 4,624 4,577
Estimated additional benefit liabilities for claims occurring in fiscal year (cash value) $372,123 $8.9 mill. $18.4 mill. $19.4 mill. $19.3 mill. $19.0 mill.
Estimated additional benefit liabilities for claims occurring in fiscal year (present value) $340,009 $8.1 mill. $16.8 mill. $17.8 mill. $17.7 mill. $17.5 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

In addition to the impact of the learning curve models on projected liabilities , ROC also calculated the effects of the four- and three-year learning curves on actual costs projected to be paid out per fiscal year. Tables 16 and 17 show the projected costs per fiscal year for the four- and three-year learning curves, respectively.

Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007;

Four-year "Learning Curve" Applied to Estimate Actual Utilization

(Revised Cost Estimate; Cash Value)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Additional TIBs paid $96,755 $3.0 mill. $7.4 mill. $11.5 mill. $12.9 mill. $13.0 mill.
Additional IIBs paid $5,281 $380,789 $1.2 mill. $2.2 mill. $3.0 mill. $3.2 mill.
Additional SIBs paid $1 $90 $2,847 $16,728 $48,007 $87,070
Additional LIBs paid $351 $34,927 $168,241 $444,001 $847,459 $1.3 mill.
Additional DBs paid $251 $13,578 $51,286 $115,473 $193,409 $273,320
TOTAL Additional benefits paid in fiscal year $102,640 $3.4 mill. $8.8 mill. $14.3 mill. $16.9 mill. $17.9 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

Additional Benefit Costs of Article 10 of HB 2600, FY 2002-2007;

Three-year "Learning Curve" Applied to Estimate Actual Utilization

(Revised Cost Estimate; Cash Value)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Additional TIBs paid $96,755 $5.1 mill. $11.2 mill. $12.9 mill. $13.1 mill. $13.1 mill.
Additional IIBs paid $5,281 $631,401 $1.9 mill. $2.9 mill. $3.2 mill. $3.3 mill.
Additional SIBs paid $1 $135 $4,566 $26,980 $70,436 $108,166
Additional LIBs paid $351 $56,849 $270,121 $647,859 $1.1 mill. $1.6 mill.
Additional DBs paid $251 $22,453 $81,337 $160,269 $239,531 $314,165
TOTAL Additional benefits paid in fiscal year $102,640 $5.8 mill. $13.4 mill. $16.6 mill. $17.8 mill. $18.3 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

The revised estimates for the multiple employment provision are considerably more detailed than those prepared for the original HB 2600 fiscal note, and should come significantly closer to projecting the actual liabilities and costs of the additional benefits available. While the overall projections for the provision are higher under some of the new estimates - primarily because of increases in the average benefit durations used in the more recent numbers and the inclusion of calculated projections for all benefit types, rather than just TIBs - other factors considered, such as the "learning curve" concept that will affect utilization and the delayed effective date, should help mitigate these costs.

Interestingly, when the liability projections over the six years of the original fiscal note are compared to those in the much more detailed revised calculations incorporating "learning curves", the overall estimated cost is very similar. The original fiscal note estimate of $74.0 million in ultimate additional system costs based on injuries between FY 2002 and 2007 compares to a $73.9 million estimate on a cash value and $67.9 million on a present value basis (with consideration of the four-year learning curve and delayed effective date, items not considered in the original estimate) in the revised fiscal note. Over the earlier years of the estimate the original fiscal note projections of additional liabilities were considerably higher; $47.8 million, for example, for injuries during the first four years, compared to $35.7 million on a cash value basis and $32.8 million on a present value basis in the new estimates. Table 18 summarizes estimated accrued additional liabilities by year for the original and revised four- and three-year learning curve scenarios.

FY 2002 to 2007
Ultimate accrued liabilities for injuries occurring in fiscal year Original HB 2600 fiscal note 4-yr. learning curve revised estimate (cash value) 4-yr. Learning curve revised estimate (present value) 3-yr. Learning curve revised estimate (cash value) 3-yr. Learning curve revised estimate (present value)
FY 2002 $11.4 mill. $372,123 $340,009 $372,123 $340,009
FY 2003 $23.1 mill. $5.5 mill. $5.0 mill. $9.3 mill. $8.4 mill.
FY 2004 $35.2 mill. $17.7 mill. $16.2 mill. $27.7 mill. $25.2 mill.
FY 2005 $47.8 mill. $35.7 mill. $32.7 mill. $47.0 mill. $43.0 mill.
FY 2006 $60.8 mill. $54.9 mill. $50.3 mill. $66.3 mill. $60.6 mill.
FY 2007 $74.0 mill. $73.9 mill. $67.9 mill. $85.3 mill. $78.1 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

As noted, Article 10 of HB 2600 stipulates that any additional income or death benefits paid under the multiple employment provision are reimbursable from the Subsequent Injury Fund (SIF). The next portion of the report examines the projected impact of this reimbursement provision on the SIF.

Revised Subsequent Injury Fund (SIF) Impact

The addition of reimbursements for multiple employment-based benefits is a significant new obligation for the SIF. With its revenue comfortably exceeding its liabilities throughout much of the 1990s, the SIF's FY 2001 year-end available assets had grown to about $18.9 million. This is primarily what made the SIF an option for funding carrier reimbursements for additional benefits paid based on multiple employment, along with the other, less costly obligations added by HB 2600. However, it was clear that the SIF likely could not sustain full reimbursement for the multiple employment provision in the long term.

Because of the uncertainty surrounding the SIF and its appropriate long-term use, the House Committee on Business and Industry was assigned an interim charge to examine the SIF and make recommendations related to its funding and/or management. These recommendations could range from discontinuing the SIF to augmenting its funding or changing its obligations. In order to evaluate the SIF impact based on the more complete multiple employment projections and allow an informed discussion about the SIF's future, ROC worked with TWCC and Business and Industry Committee staff to evaluate many aspects of the current state of the SIF.

This portion of the report focuses on those aspects related to the projected revenue of the SIF and its projected expenditures and liabilities, to help provide information as to how long the SIF might remain viable under current conditions. These sections will also, where appropriate, provide projections both on a cash value and present value basis. Although the SIF is currently managed on a cash value basis (per direction by the State Comptroller's office), the present value calculations are extremely useful and pertinent in projecting the true viability of the SIF in the coming years. In addition, the revised SIF projections will show both the impact of additional multiple employment-based potential benefit liabilities on the SIF and the cash flow impact of reimbursements for additional benefits actually paid in a given year.

Most of the SIF's revenue is provided by the payment of death benefits by insurance carriers for claims in which the deceased employee has no beneficiaries, or those in which all beneficiaries cease to be eligible prior to the payment of 364 weeks (seven years) of benefits. In cases in which there is no beneficiary, the insurance carrier is required to pay an amount equal to 364 weeks of death benefits into the SIF. In cases in which the carrier begins to pay benefits to an eligible beneficiary, but that beneficiary subsequently ceases to be eligible (e.g., re-marries, or, in the case of a minor, reaches the applicable statutory age limit) prior to the payment of 364 weeks, TWCC rule stipulates that the carrier is to pay the unpaid amount up to 364 weeks into the SIF.

Clearly, the major factor driving the amount of money paid into the SIF is the number of compensable deaths occurring in Texas in a given year, combined with those from previous years. In order to estimate SIF income from death benefits, ROC calculated the number of "SIF deaths" (i.e., death claims for which money is paid into the SIF) as a percentage of overall occupational fatalities in Texas and a percentage of compensable deaths from 1996 to 2001 (based on System Data Report historical data). These calculations were then used to project the number of SIF deaths from 2002 to 2007, the period of the cost estimate. ROC also factored in a lag between the time a SIF death occurs and the time payments are actually made into the SIF; historically, for the period examined, this lag was approximately 1.6 years. Table 19 shows the projected number of SIF deaths and projected income for the SIF.

Estimated SIF Income from Death Claims; FY 2002-2007

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of SIF deaths 47 49 48 50 50 51
Average amount of SIF death payment $96,711 $98,141 $99,572 $101,002 $102,432 $103,863
Estimated total SIF revenues due to death benefit payments made in fiscal year $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

It is also perhaps significant to note that TWCC is currently undertaking a project to re-examine whether additional death benefit payments were due into the SIF (but not paid) in previous years. This analysis is expected to be completed this fall. Since the projections shown in Table 19 are based on historical data related to the number of death benefits paid into the SIF, the results of this project may impact the revenue estimates if it is found that more death benefits were due than previously was thought.

In addition to death benefit income, the SIF receives significant interest income. Since that income is based on the SIF's balance, however, it will be included after the next portion of the report, which summarizes the expenses and liabilities of the fund.

This portion of the report examines the projected impact on the SIF of its estimated liabilities and expenses between FY 2002 and 2007. The SIF has four major liabilities, which will be discussed in this order:

· payment of LIBs for claimants who qualify due to a subsequent on-the-job injury;

· reimbursement of insurance carrier payments based on overturned TWCC interlocutory orders or decisions;

· reimbursement of insurance carrier payments for pharmaceutical services provided during the first seven days post-injury, in claims that are later determined non-compensable; and

· reimbursement of benefits paid by insurance carriers based on multiple employment.

As discussed in the previous section on multiple employment-related benefit costs and liabilities, there are two general ways to project the impact of these obligations on the SIF in the coming years that are examined in this report. One focuses on the ultimate potential liability on the SIF; the other on the actual projected payout from the SIF. For expenses related to the multiple employment provision, this report examines the impact through both methods.

The SIF is also required to provide up to $1.5 million in funding for regional workers' compensation health care network feasibility studies pursuant to Article 2 of HB 2600. ROC accounted for this expense in the SIF projections by deducting $1 million from the SIF's beginning balance in FY 2003 and an additional $500,000 from its beginning balance in FY 2004.

LIBs Payments in Subsequent Injury Cases

Relatively few injured employees qualify for Lifetime Income Benefits (LIBs), and a much smaller percentage receive those benefits from the SIF. These cases involve an employee who has a previous injury or pre-existing condition (whether work-related or not) and then subsequently suffers a compensable injury that qualifies him or her for LIBs. For example, an employee may be blind in one eye and then suffer a work-related injury that causes blindness in the other, qualifying him or her for LIBs. In these cases, the insurance carrier for the subsequent injury is still required to pay some benefits related to that injury, but the SIF picks up the ongoing LIBs payments.

In FY 2001, 36 injured employees were receiving LIBs payments from the SIF based on prior years' claims. While this a fairly small number, the expense of even a single LIBs claim is significant over the life of the claimant. In order to calculate the SIF's liability for these existing claims, ROC considered these factors:

1. The age and gender of the current SIF LIBs recipients;

2. Their remaining life expectancies, according to projections based on the TWCC mortality table mentioned previously; and

3. The payment amounts remaining based on their life expectancy, with a 3 percent annual escalation in payment for LIBs claims occurring on or after January 1, 1991.

Based on historical claim data, ROC also projected the number of additional SIF LIBs claims between 2002 and 2007 (projecting one new SIF LIBs claim per year) and the cost of these new claims, based on average weekly LIBs benefit projections. Table 20 summarizes the results and shows cash and present value calculations for the SIF LIBs liabilities.

Estimated SIF Liabilities for LIBs Claims

(Existing claims as of FY 2002 and projected for FY 2002 to 2007)

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated number of existing LIBs claims 36 36 36 36 36 35
Estimated annual LIBs payment on existing claims $410,816 $413,486 $416,236 $419,069 $418,769 $413,352
Estimated new LIBs claims (aggregate FY 02-07) 1 2 3 4 5 6
Estimated annual LIBs payment on new claims $56,007 $75,088 $94,284 $113,534 $133,866 $155,310
Estimated total LIBs claims 37 38 39 40 41 41
Estimated total annual LIBs payments $466,823 $488,574 $510,521 $532,604 $552,635 $568,662
Estimated cash value SIF liability for LIBs claims $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Estimated present value SIF liability for LIBs claims $5.6 mill. $5.9 mill. $6.1 mill. $6.4 mill. $6.7 mill. $6.9 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

As previously noted, TWCC currently uses a cash value approach to set estimated LIBs reserves. However, changes made by Article 10 of HB 2600 allow TWCC to purchase annuities to pay these LIBs liabilities. The present value numbers shown to some extent estimate the potential impact of purchasing annuities, since they take into account interest income that may be used to pay the benefits; however, additional information is needed to calculate the true impact of purchasing annuities for LIBs claims.

Carrier Reimbursements (Non-Multiple Employment)

The SIF is also responsible for reimbursement of benefits paid by carriers as a result of interlocutory orders or decisions of TWCC that are later overturned. This is one of the more difficult aspects of the SIF forecast to project, since it is dependent on factors such as volume of interlocutory orders issued, subsequent dispute outcomes, and the standards a carrier must meet to successfully claim reimbursement from TWCC. ROC used several pieces of information and assumptions to help project these SIF costs. They were:

· The annual number of interlocutory orders issued at the Benefit Review Conference (BRC) level, which provides the base number for orders that may be reversed;

· The percentage of dispute resolution outcomes favorable to insurance carriers (these decisions, which may be issued at the contested case hearing (CCH) level or higher, might allow an insurance carrier to apply for reimbursement of benefits previously ordered paid by TWCC);

· The annual death benefit payments made to the SIF (income into the SIF historically seems tied to the amount of reimbursements paid for overturned interlocutory orders, in that more income leads to more reimbursement); and

· The annual LIBs payments made from the SIF (LIBs payments from the SIF historically seem tied to the amount of reimbursements paid for overturned interlocutory orders, in that more LIBs payments leads to less reimbursement).

For projection purposes, ROC analyzed TWCC dispute resolution data (from TWCC's Dispute Resolution Information System, or DRIS) for codes indicating that an interlocutory order was issued at the BRC level. ROC also analyzed these data to determine the percentage of disputes on which a carrier prevails at a level higher than the BRC. For calculation purposes, it was assumed that this percentage of "carrier prevail" disputes would hold for the subset of disputes on which an interlocutory order was issued. Applying this percentage produced an estimated number of disputes on which an interlocutory order was issued and a carrier subsequently prevailed, making the carrier eligible for SIF reimbursement. ROC's projections also took into account annual death benefit payments and LIBs expenses from the SIF, as described previously. Table 21 summarizes these factors and the resulting projected annual carrier reimbursement amounts for FY 2002 to 2007.

Estimated SIF Payments for Non-Multiple Employment

Insurance Carrier Reimbursements; FY 2002-2007

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Estimated # of dispute resolution outcomes favorable to carriers involving interlocutory orders 471 544 572 600 627 655
Estimated total SIF death benefit amount $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Estimated total LIBs payments $466,823 $488,574 $510,521 $532,604 $552,635 $568,662
Estimated total reimbursement amount $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.

Source: Research and Oversight Council on Workers' Compensation, 2002.

It should also be noted that the ROC did not include any projection of reimbursement of carrier payments for pharmaceuticals for the first seven days post injury in claims later found to be non-compensable. This statutory change, made under HB 2600, was intended to eliminate uncertainty about the coverage of an employee's injury during the initial post-injury period that may make it difficult for the employee to get prescriptions filled. Although carriers can claim reimbursement for payments made in non-compensable claims, ROC has received feedback from a number of system stakeholders (and TWCC staff) that this additional burden on the SIF is expected to be very slight. This is in large part because the expected cost and "hassle factor" associated with these reimbursements are likely to outweigh the amount of reimbursement a carrier could receive, in many cases.
ROC opted not to calculate the impact of this new provision at this time, primarily due to the lack of any historical data on which projections could be based. If costs for this provision are shown to be more than negligible, they may be necessary to include in future analyses based on actual experience.

Multiple Employment-based Carrier Reimbursements and Overall SIF Forecast

The largest potential drain on the SIF is the addition of the new multiple employment reimbursement. In terms of SIF impact, the potential costs and liabilities associated with the addition of the multiple employment provision will be driven largely by its utilization by injured employees - and, to a lesser extent, by the insurance carrier's ability to apply for and receive SIF reimbursement. Since the impact on the SIF is tied directly to these factors, the ROC has attempted to show several possible scenarios for the SIF.

In addition, this portion of the report shows the potential impact on the SIF related to the multiple employment provision both in terms of liabilities incurred over the six-year period and actual costs over the same period. The impact of each of the three potential utilization scenarios (full utilization, four-year and three-year) discussed previously will also be shown.

Table 22 shows a cash-value based SIF forecast for FY 2002 to 2007 (on a year-end assets basis), considering projected levels of revenue and expenses/liabilities, and assuming full utilization of the multiple employment provision by eligible employees and full reimbursement of carriers. While this level of utilization of the new provision is not likely, it is provided to indicate the projected maximum potential liabilities on the SIF. The final row of the table also shows the present value year-end assets. Table 22 shows the SIF's potential liabilities for additional benefits paid based on multiple employment for injuries that occur in each given year, not the amount of reimbursement the SIF would actually make in that year.

Table 22

Projected SIF Revenues, Expenditures, Liabilities, and Year-end Assets -

Full Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $908,954 $340,974 ($707,692) ($1.8 mill.) ($2.9 mill.) ($4.0 mill.)
SIF LIBs liabilities (reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.
Multiple employment liabilities $4.1 mill. $24.2 mill. $23.8 mill. $23.9 mill. $23.8 mill. $23.4 mill.
Estimated year-end available assets (cash value) $18.3 mill. ($3.4 mill.) ($25.1 mill.) ($47.4 mill.) ($70.5 mill.) ($94.3 mill.)
Estimated year-end available assets (present value) $19.3 mill. $146,568 ($19.1 mill.) ($38.7 mill.) ($59.2 mill.) ($80.2 mill.)

Source: Research and Oversight Council on Workers' Compensation, 2002.

As the table shows, the potential impact on the SIF assuming a full utilization scenario is significant, if the long-term potential liabilities for additional multiple employment-related benefits are considered. Table 22 indicates that if additional benefits available based on the multiple employment provision are fully utilized, the SIF could reach a point in late FY 2003 or early FY 2004 at which the liability for reimbursement of claims eligible for multiple employment-based benefits would exceed the available assets of the SIF. However, since the SIF will not reimburse carriers for potential liabilities for claims in advance, but only after they have been paid by the carrier, the actual cash flow from the SIF will not reflect these liabilities for some time, as later tables will show.

Also, as explained in the earlier discussion of the "learning curve" concept for the multiple employment provision, this maximum multiple employment utilization is not likely. A more likely scenario - one incorporating the four-year learning curve concept as described earlier - shows the SIF's assets exceeding its potential liabilities through FY 2004, and far into FY 2005. Table 23 presents this scenario on cash and present value bases, respectively.

Table 23

Projected SIF Revenues, Expenditures, Liabilities and Year-end Assets -

Four-year "Learning Curve" applied to Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $1.0 mill. $1.0 mill. $762,011 $211,257 ($533,024) ($1.3 mill.)
SIF LIBs liabilities (reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.
Multiple employment liabilities $372,123 $5.1 mill. $12.2 mill. $18.0 mill. $19.2 mill. $19.0 mill.
Estimated year-end available assets (cash value) $22.2 mill. $20.2 mill. $11.5 mill. ($2.8 mill.) ($19.0 mill.) ($35.6 mill.)
Estimated year-end available assets (present value) $22.8 mill. $21.7 mill. $14.4 mill. $2.0 mill. ($12.0 mill.) ($26.5 mill.)

Source: Research and Oversight Council on Workers' Compensation, 2002.

Table 24 shows the year-end assets for the SIF assuming the three-year learning curve discussed previously.

Projected SIF Revenues, Expenditures, Liabilities and Year-end Assets -

Three-year "Learning Curve" applied for Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $1.0 mill. $916,126 $414,571 ($340,237) ($1.1 mill.) ($2.0 mill.)
SIF LIBs liabilities (reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $994,331 $1.0 mill. $1.0 mill. $1.1 mill.
Multiple employment liabilities $372,123 $8.9 mill. $18.4 mill. $19.3 mill. $19.3 mill. $19.0 mill.
Estimated year-end available assets (cash value) $22.2 mill. $16.4 mill. $1.1 mill. ($15.1 mill.) ($32.0 mill.) ($49.3 mill.)
Estimated year-end available assets (present value) $22.8 mill. $18.2 mill. $4.9 mill. ($9.2 mill.) ($23.9 mill.) ($39.0 mill.)

Source: Research and Oversight Council on Workers' Compensation, 2002.

What about actual multiple employment reimbursement payments per fiscal year from the SIF? As discussed previously, the benefit liabilities shown in Tables 22-24 may be paid out over many years. The previous section described the method used to project the actual payout of additional benefits by fiscal year. In order to estimate the impact on the SIF, ROC further considered any potential time lag between the carrier's payment of additional multiple employment-related benefits and the SIF's reimbursement of the carrier for these payments.

To assist with the projection of this lag, TWCC staff informed ROC that the SIF would make its first reimbursements of multiple employment-based benefits in October 2003 (early in FY 2004). Any multiple employment-related carrier payments made from the effective date of the provision to this time and properly submitted to the SIF would be reimbursed at this time. TWCC plans for the SIF to continue on this once-a-year reimbursement schedule, paying in October of each year, for the foreseeable future.

Based on this reimbursement plan, ROC assumed that additional multiple employment-based benefits paid by carriers in FY 2002 and FY 2003 would be reimbursed in October 2003 (early FY 2004); the benefits paid in FY 2003 would be reimbursed in October 2004 (early FY 2005); and so on. Table 25 shows the projected SIF balance based on actual multiple employment-based reimbursements made in a given fiscal year, assuming full utilization of the multiple employment provision by injured employees and full reimbursement of carriers. Note that no SIF payouts related to multiple employment are shown in FY 2002 or 2003, since TWCC does not plan to make the first SIF reimbursements until early FY 2004.

It should be noted that while multiple employment-related reimbursements from the SIF in Table 25 are shown on a payment rather than liability basis, SIF LIBs payment are still shown in terms of liability. This is because the payment of LIBs from the SIF is given the highest priority of any SIF obligation, and under no foreseeable scenario would TWCC not reserve for these payments on either a cash or present value basis.

Projected SIF Revenues, Expenditures, and Year-end Assets -

Full Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $1.0 mill. $1.2 mill. $426,247 ($401,601) ($1.3 mill.) ($2.4 mill.)
SIF LIBs liabilities (cash value reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.
Expenditures: Multiple employment reimbursements $0 $0 $18.5 mill. $20.3 mill. $21.8 mill. $22.7 mill.
Estimated year-end available assets (cash value) $22.6 mill. $25.9 mill. $10.6 mill. ($6.7 mill.) ($26.3 mill.) ($47.7 mill.)
Estimated year-end available assets (present value) $23.1 mill. $26.9 mill. $11.9 mill. ($5.0 mill.) ($24.2 mill.) ($45.2 mill.)

Source: Research and Oversight Council on Workers' Compensation, 2002.

Tables 26 and 27 show the projected impact on the SIF balance for actual reimbursements considering the four- and three-year learning curves, respectively.

Table 26

Projected SIF Revenues, Expenditures, and Year-end Assets -

Four-year "Learning Curve" applied to Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $1.0 mill. $1.2 mill. $1.2 mill. $741,211 $327,287 ($189,423)
SIF LIBs liabilities (reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.
Expenditures: Multiple employment reimbursements $0 $0 $3.5 mill. $8.8 mill. $14.3 mill. $16.9 mill.
Estimated year-end available assets (cash value) $22.6 mill. $25.9 mill. $26.2 mill. $21.7 mill. $11.2 mill. ($2.1 mill)
Estimated year-end available assets (present value) $23.1 mill. $26.9 mill. $27.6 mill. $23.7 mill. $13.7 mill. $741,603

Source: Research and Oversight Council on Workers' Compensation, 2002.

Table 27

Projected SIF Revenues, Expenditures, and Year-end Assets -

Three-year "Learning Curve" applied to Multiple Employment Utilization

FISCAL YEAR
2002 2003 2004 2005 2006 2007
Revenue: SIF death benefits $4.5 mill. $4.8 mill. $4.8 mill. $5.0 mill. $5.1 mill. $5.3 mill.
Revenue: Interest $1.0 mill. $1.2 mill. $1.0 mill. $603,591 ($22,435) ($732,144)
SIF LIBs liabilities (reserved) $9.5 mill. $10.2 mill. $10.8 mill. $11.3 mill. $11.8 mill. $12.4 mill.
Expenditures: Carrier reimbursement, non multiple employment $942,642 $1.0 mill. $1.0 mill. $1.0 mill. $1.0 mill. $1.1 mill.
Expenditures: Multiple employment reimbursements $0 $0 $5.9 mill. $13.4 mill. $16.6 mill. $17.8 mill.
Estimated year-end available assets (cash value) $22.6 mill. $25.9 mill. $23.8 mill. $14.4 mill. $1.3 mill. ($13.5 mill.)
Estimated year-end available assets (present value) $23.1 mill. $26.9 mill. $25.1 mill. $16.1 mill. $3.4 mill. ($11.0 mill.)

Source: Research and Oversight Council on Workers' Compensation, 2002.

Carrier Reimbursement Rates

Just as it is unlikely that all eligible employees will receive the multiple employment benefit, it is also perhaps unlikely that all insurance carriers eligible to claim reimbursement will do so, or do so successfully. Calculations thus far have assumed that all multiple employment benefits paid by carriers will be submitted to the SIF for reimbursement and be reimbursed. If this does not occur, the impact on the SIF would be less than estimated.

In an attempt to accurately estimate the percentage of the overall multiple employment-related benefit costs that will be reimbursed from the SIF, ROC consulted with TWCC staff about historic rates of SIF reimbursement for non-multiple employment related carrier requests for reimbursement (i.e., those related to overturned interlocutory orders or decisions). Over the four-year period from 1998 to 2001, TWCC statistics indicated that of 717 requests for reimbursement, 162 (about 23 percent) were deemed incomplete by TWCC staff and not reimbursed. These requests may have been re-submitted later and reimbursed in whole or in part -- the available SIF statistics do not allow this pattern to be evaluated. For those requests that were deemed complete, SIF statistics were only available for 2000 and 2001. In 2001, 56 percent of completed requests were reimbursed in whole or in part. In 2000, 65 percent of such requests were reimbursed.

The rate of successful carrier reimbursements as a percentage of the total submitted might suggest that the multiple employment reimbursement rate would be considerably smaller than the potential cost of the additional benefits paid related to the provision. Other factors, however, indicate that the rate of carrier reimbursement on multiple employment-based benefits will be higher, perhaps significantly so, than the reimbursement rate for overturned interlocutory orders. For one, the more significant cost of the multiple employment provision provides more incentive to carriers to successfully complete and receive payment. Another factor is that more potential complications exist in a carrier receiving reimbursement for an overturned interlocutory order than would seem to be the case for multiple employment-based reimbursements. TWCC staff also has indicated that the multiple employment reimbursement procedure seems relatively straightforward and likely to be claimed and paid at a high rate.

For projection purposes, then, while it seems possible that less than 100 percent of carriers will request reimbursement, and that less than 100 percent of carriers requesting reimbursement will receive it, the ROC did not attempt to project multiple employment reimbursement rates below 100 percent. Obviously, reimbursement at a lower rate would mean a less significant impact on the SIF in any of the scenarios shown. ROC plans to track actual reimbursements over the next several fiscal years in order to revise these estimates.

Interest Income

Interest income has been a significant source of additional funding for the SIF in the past. TWCC indicates that the SIF has been earning an interest rate of approximately five percent over the last few years prior to FY 2002; during that year, only about three percent is expected to be earned. For projection purposes, ROC assumed a five percent annual interest rate, but will revisit this issue in the future to determine whether adjustment to the projected interest rate is appropriate.

Implications of Year-end SIF Balance

It should be noted that the projected year-end balances for the SIF shown in the various tables in this report must be considered in context. First, a negative balance does not indicate that the SIF would be unable to pay LIBs for entitled claimants, since the LIBs liabilities calculation assumes adequate funding reserved to pay all obligations in this area, and TWCC rules prioritize these LIBs payments over other SIF liabilities, including multiple employment. Reserving for LIBs is accounted for in all projections, both those related to liabilities and those related to actual costs.

In addition, as previously noted, HB 2600 provides that if the SIF appears unable to fulfill its projected obligations (a finding to be determined through the required biannual actuarial analyses), TWCC may trigger an increase in the workers' compensation insurance maintenance tax sufficient to provide 120 percent of the SIF's unfunded liabilities. This would open a new revenue source to the SIF not previously available. None of the SIF projections shown assume an increase in the maintenance tax.

HB 2600 also allows TWCC to make partial payments of multiple employment and initial pharmaceutical reimbursements, also based on the actuarial assessments. If partial payments are made, then a portion of the additional system costs from the multiple employment provision will simply be borne by the system as a whole, rather than concentrated in full on the SIF.

Also, it is important to distinguish the liability projections from those involving actual costs. Again, the liability projections (Tables 22-24) show the projected liabilities on the SIF based on claims occurring in a given year; the cost projections (Tables 25-27) show the actual expected cash flow from the SIF in a given year.

Conclusion - Revised HB 2600 Article 10 Cost Estimates

The revised fiscal estimates for the additional benefit liabilities based on the multiple employment provision of Article 10 of HB 2600 (assuming either the three- or four-year learning curve for the provision's utilization) range from $67.9 million to $85.3 million for claims occurring over a six-year period. The methodology to arrive at these estimates involved projections of the number of injured employees with more than one job able to claim additional benefits, the amount of additional benefits these employees would receive, and the duration for which these employees would receive the benefits. Actual additional benefits paid during this six-year period will represent only a portion of the overall liabilities.

Perhaps of as much concern to policymakers as the overall liabilities or costs of the multiple employment provision to the system as a whole is its potential impact on the Subsequent Injury Fund (SIF), which is responsible for reimbursing insurance carriers who pay additional benefits based on the provision.

ROC's revised projections indicate that, based on a scenario in which all eligible employees pursue additional benefits under the multiple employment provision and receive them, the SIF's potential liability for additional benefits paid by carriers based on multiple employment could exceed the available assets of the SIF by the end of FY 2003. This is an unlikely scenario, however, given that some injured employees will not know about the benefit, some will not choose to pursue it, some will not be able to document their additional wages, and some will lose eligibility disputes. oweThis Much more realistic are the three- or four-year learning curve scenarios discussed previously. Under the three-year learning curve scenario, the SIF's potential liabilities for multiple-employment based benefits would not exceed its assets until late in FY 2005; under the four-year learning curve scenario, this would not occur until late FY 2005 or early FY 2006.

As for actual SIF payments based on multiple employment, ROC's projections indicate that, assuming full utilization by employees, the SIF's available assets to make multiple employment-based reimbursements would be exhausted some time in FY 2005. Under the three-year learning curve, the SIF would not run out of available assets to make multiple employment-based reimbursements until early FY 2007; under the four-year scenario, this would not occur until late FY 2007 or early FY 2008.

All scenarios also assume that all insurance carriers seek and receive reimbursement in all cases where they are eligible, an assumption which, as previously stated, may not be borne out. These projections do not assume any increase in the maintenance tax or account for the possibility of partial payments of multiple employment-based reimbursements in the year-end balances.

While the potential cost of the multiple employment provision in the revised fiscal note is somewhat higher than in the original, the implications for the SIF remain much the same -- the fund appears adequate to provide a short- to medium-term source of funding through carrier reimbursements, but is unlikely to be able to play this role on an ongoing, long-term basis. However, while the projections are somewhat higher, when the actual projected payout from the SIF is considered, the new forecasts indicate that the SIF might continue as a source of full reimbursements for somewhat longer (until FY 2006 or 2007) than was commonly believed at the time HB 2600 was passed.

In any case, it is likely that the long-term funding of the multiple employment provision (whether through supplementing the SIF, shifting the cost of the additional benefits in the system, or modifying the benefit) may be an issue that will need to be monitored and addressed in future legislative sessions. ROC plans to continue monitoring the liabilities, expenditures and revenues of the SIF over the next few years and to revisit these projections after the system has actual experience with the multiple employment provision.

Prior to 1989, statutory language related to "same or similar employment" by an injured employee led to court interpretations that allowed some consideration of multiple employment in income benefit levels. This led to a limited consideration of multiple employment. See Research and Oversight Council on Workers' Compensation (ROC's) online publication Multiple Employment in the Texas Workers' Compensation System: Features and Benefits , August 2001, available online at http://www.tdi.tx.us/wc/regulation/roc/multemp.html for more details on pre-1989 interpretations of multiple employment-related system features.

Other income benefits are Impairment Income Benefits (IIBs), paid based on the injured employee's level of permanent impairment; Supplemental Income Benefits (SIBs), paid based on an ongoing inability to work; and Lifetime Income Benefits (LIBs) paid for certain types of qualifying injuries. Death Benefits (DBs) are also paid in cases of compensable deaths.

The FY 2002 amount is actually much lower, since the multiple employment provision was only effective during two months of that year.

The liability projections show the total additional benefits that will be paid based on injuries that occur in a given year (but not necessarily all paid in that year). The cost projections show the actual additional benefit costs paid in a given year.

The SIF is currently responsible for payments of LIBs to 36 claimants who qualified for these benefits as the result of a subsequent injury. In FY 2002, $9.5 million would be reserved to pay these claims on a cash value basis. Cash value assumes adequate reserves to pay all projected benefits due on a claim without consideration of the interest income that may be earned during the period the benefits are paid out. A present value reserves calculation would allow this interest to be considered and would result in smaller reserves required to ensure payment of the claims. For example, in FY 2002, only $5.6 million would need be reserved on a present value basis. The SIF is currently operated on a cash value basis, however.

Two other obligations were also added to the SIF by HB 2600. These include funding of up to $1.5 million for regional workers' compensation health care network feasibility studies and reimbursement of insurance carriers for the payment of initial pharmaceutical benefit payments in claims that are later found to be non-compensable.

The maintenance tax is a tax on gross workers' compensation insurance premiums in Texas and is paid by all insurance carriers and certified self-insurers operating in the state, except for governmental entities.

Other factors besides pre-injury wages also play a major role in the total amount of income benefits an employee receives, while the pre-injury weekly wage largely controls the weekly amount. For Temporary Income Benefits (TIBs), the amount of time off work due to an on-the-job injury controls the duration of benefits (minus any earnings during that time off); for Impairment Income Benefits (IIBs), the employee's level of permanent impairment, measured through a whole-body impairment rating, controls; for Supplemental Income Benefits (SIBs), an ongoing inability to work is the major criteria. Weekly caps on the four types of income benefits in the Texas workers' compensation system in 2002 are: $536 for TIBs and Lifetime Income Benefits (LIBs); and $375 for IIBs and SIBs. Death Benefits (DBs) are also capped at $536 a week in FY 2002.

Prior to 1989, statutory language related to "same or similar employment" by an injured employee led to court interpretations that allowed some consideration of multiple employment in income benefit levels. This led to a limited consideration of multiple employment. See ROC online publication Multiple Employment in the Texas Workers' Compensation System: Features and Benefits , August 2001, available online at http://www.tdi.tx.us/wc/regulation/roc/multemp.html for more details on pre-1989 interpretations of multiple employment-related system features.

As of August 2001, a ROC online review of statutes in other states revealed that 14 offered some statutory consideration of multiple employment in income benefit calculations. See Multiple Employment in the Texas Workers' Compensation System: Features and Benefits , August 2001, available online at http://www.tdi.tx.us/wc/regulation/roc/multemp.html.

A technical appendix and detailed calculations used to produce the estimates in this report are available from the ROC upon request.

Aside from general concern about the addition of new costs to the system through increasing the AWWs of some injured employees, employers also had specific concerns, including how the workers' compensation insurance premiums of those employers who rely heavily on employees who hold more than one job might be affected, as well as for an employer at-injury (i.e., the employer where an injured employee is hurt) "subsidizing" benefits for the injured employee that are based on other wages.

Based on a survey of 2,808 year-round Texas employers between August and October 2001, ROC estimates that 65 percent of Texas employers employing 84 percent of the state's workforce carry workers' compensation insurance coverage. See Shields, Joseph, and D.C. Campbell, A Study of Nonsubscription to the Texas Workers' Compensation System: 2001 Estimates , Research and Oversight Council on Workers' Compensation, February 2002.

See Texas Labor Code Sections 403.006 and 403.007 for a full statutory description.

The maintenance tax is a tax on gross workers' compensation insurance premiums in Texas and is paid by all insurance carriers and certified self-insurers operating in the state, except for governmental entities. Governmental entities include the state government as well as other political subdivisions, such as school districts, cities and counties. Revenue from the maintenance tax provides funding for TWCC, the Texas Department of Insurance (TDI) and the ROC. The current statutory cap on the maintenance tax is two percent of the gross workers' compensation insurance premium in the state.

See A Joint Project between the United States Department of Labor, Bureau of Labor Statistics and the Bureau of the Census , available online at http:www.bls.census.gov/cps/pub/empsit_mar2000.htm.

The System Data Report is a twice-yearly TWCC-produced publication showing aggregate calculations of various categories of data relevant to the Texas workers' compensation system, including number of injuries, income and medical benefits paid, and other items. It is available online at TWCC's website, www.tdi.state.tx.us.

Due to a rounding error in the original calculations, the actual number shown in the fiscal note was 4,387.

The TWCC System Data Report for December 2000 indicated that the average duration of TIBs was 11.3 weeks.

This was an estimate based on historical System Data Report information on the AWW in prior years.

Due to a slight miscalculation in the original fiscal note, the breakdown of employees into the two categories of the full-time/part-time employment group differs slightly from the numbers shown for these two groups. This produces a small difference between the numbers shown in the original fiscal note and those shown here.

The smaller increase between FY 2006 and 2007 occurs because at that point in the projection, employees with a part-time and full-time job (Group 3) would be limited by the projected cap on TIBs.

This does not mean that $74.0 million will be paid in additional income benefits during these fiscal years, but rather that $74.0 million in income benefit liabilities will eventually be paid for injuries occurring during the six-year period.

The ROC considered System Data Report information for prior years in projecting future levels of TIBs caps and AWWs. The cap was projected to increase at a rate of $11 per year based on historical patterns; the AWW was projected to increase at between $19 and $22 a year, also based on historical patterns.

A number of possible scenarios may apply to the duration of Death Benefits. These benefits may be paid for the life of the beneficiary, in the case of a spouse who does not re-marry; if a spouse does re-marry, two years of benefits are paid out and benefits thereafter cease. In the case of children, benefits may continue until the child is 18, or longer, if the child is enrolled in college. A number of other scenarios are possible; see Labor Code Section 408.183.

If a carrier begins to pay death benefits to the SIF (because there is no apparent beneficiary) and an eligible beneficiary comes forward during the first year after the death, the carrier will cease payment into the SIF and is entitled to a refund for benefits already paid into the SIF (see Labor Code Section 403.007 (e).) Alternately, if all beneficiaries cease to be eligible prior to the payment of 364 weeks, the carrier is required to pay the SIF an amount equal to the total weekly payments up to 364 weeks minus what has been paid to beneficiaries (see TWCC Rule 132.10 (b).).

See Texas Labor Code Section 413.0141.

See Texas Labor Code Sections 403.006 (b)(4) and 408.0221.

Texas Labor Code Section 403.006(f) requires TWCC, through an actuary or financial advisor, to report to the ROC twice a year on the financial condition and projected assets and liabilities of the SIF.

Data for 1994 to 2000 were taken from unpublished results of BLS surveys for Texas for these seven years.

A previous ROC survey of injured employees conducted in 2000 indicated that the percentage of multiple employment among injured employees was similar to that of the general population.

Employees earning less than $8.50 per hour receive 75 percent of their pre-injury AWW for the first 26 weeks of TIBs; see Texas Labor Code Section 408.103 (a)(2).

For employees in the first group, for example (those with two full-time jobs), calculations were done as follows: Each of these employees is now eligible to add the wages of their second full-time job to those of their first to calculate their AWW. The projected weekly benefit amount for a full-time job in FY 2002 is $348. Employees in this group, therefore, would be eligible to count two full-time wages toward their average weekly wage. However, the cap on TIBs of $536 a week would limit these employees to $188 in actual additional weekly TIBs ($536-$348=$188). This amount of additional benefits per employee was then multiplied by the projected number of eligible employees (191 in this group) and the average duration of TIBs (18.3 weeks; calculation of this average is discussed elsewhere in this section of the report). The same basic method was used to calculate the impact of additional benefits for each employment group and each benefit type. TIBs are capped at State Average Weekly Wage (SAWW), defined as the average weekly wage of manufacturing production workers in Texas. See Texas Labor Code Sections 408.047 and 408.061.

Due to rounding, multiplying the number of eligible employees by the increased TIBs per employee shown in the table may not produce the total additional TIBs shown.

After discussion between ROC and TWCC staff about why the TIBs duration differed so greatly from one System Data Report to another, ROC staff determined that methodological changes in the way TWCC calculates these durations, compounded by claims maturity factors (the passage of time allows the history of a claim to be considered more completely) largely account for the difference. In an effort to further validate the TIBs durations, ROC staff calculated TIBs durations based on the ROC's Research Database (a database built by TWCC for ROC's research purposes) and TWCC's own claims data (from TWCC's server). These two calculations were then compared with original insurance carrier TIBs payment data for a sample of claims. Results indicated that the most recent System Data Report durations appear more valid than previous System Data Report durations, but still may underestimate the actual average TIBs durations per employee. The ROC also did not assume any increase in TIBs durations based on more income benefits being available to eligible injured employees under the multiple employment provision. This is a possible outcome, and will need to be examined more closely after actual experience with the multiple employment provision has accrued.

The cap projection for FY 2003-2007 is based on historical cap data from 1991 to 2002. The TIBs rate projection for a full-time job was calculated by a similar method. It should be noted that these projections are more gradual than those used in the original fiscal note; this is in large part because data from FY 2001 and 2002 was available for the newer projections and showed a slower rate of increase than recent prior years.

Unless otherwise stated, additional costs shown due to the multiple employment provision for TIBs (and all other benefits) represent the ultimate liability for injuries that occur in that fiscal year. For example, injuries occurring in FY 2003 that qualify for the multiple employment provision are projected to add $16.3 million in TIBs costs over the life of those claims, but not $16.3 million paid in FY 2003. This distinction is even more significant for the benefit types that pay out over a much longer timeframe (such as LIBs, for example).

IIBs are calculated based on a whole-body assessment of the impact (stated as an Impairment Rating) of the on-the-job injury at the time an injured employee reaches Maximum Medical Improvement (MMI). MMI occurs at a date on which a doctor certifies that the injured employee can no longer be expected to heal any further, or 104 weeks after the date income benefits begin to accrue, whichever comes first. The Impairment Rating is stated as a percentage of whole-body impairment, and three weeks of IIBs are paid for each percentage of impairment. For further discussion on the calculation of IIBs and other types of income benefits, see An Examination of the Strengths and Weaknesses of the Workers' Compensation System , Research and Oversight Council on Workers' Compensation, August 1998.

Due to rounding, multiplying the number of eligible employees by the increased IIBs per employee shown in the table may not produce the total additional IIBs shown.

Like all Texas workers' compensation system income benefits except Lifetime Income Benefits (LIBs), employees lose all eligibility for SIBs at 401 weeks after the date of injury. See Texas Labor Code Section 408.083.

The mortality table used by TWCC is the 1980 Texas Department of Insurance's Commissioners Standard Mortality Table, from 1982 Best's Flitcraft Compend.

See Texas Labor Code 408.183 and TWCC Rule 132.10 (b).

TWCC staff verified the difficulty of determining DB durations based on data constraints and concurred with the use of the non-calculated 364 week estimate.

For purposes of calculating present value, ROC used a 5 percent interest rate, which matches the interest rate earned on the SIF's assets in recent years. Insurance carriers attempting to reserve for future benefits are not restricted in their investments as is the state, and may receive higher or lower interest rates.

This method was used for each benefit type except SIBs, where a different method to determine payment start date distribution was used. Claims data indicated that a portion of SIBs began payout within one year of the date of injury. This seems very unlikely or impossible, since any employee receiving SIBs must by definition have an impairment rating of at least 15 percent, and therefore will have thus received 45 weeks (almost one year) of IIBs prior to receiving SIBs. ROC therefore calculated the beginning payout of SIBs based on the ending date of claims receiving IIBs for which SIBs were also paid. This method still produced a very small amount (less than $10 in FY 2002, for example) of SIBs paid before it seems possible for them to be paid, but the amount was small enough to be negligible in the overall projections.

According to several previous ROC injured employee surveys, the percentage of injured employees who claim to be union members has been consistent at between 10 and 15 percent.

Although TWCC plans to help educate injured employees about the new multiple employment provision by adding information to an initial contact letter and to informational brochures, insurance carriers, which are the primary source of workers' compensation information for most injured employees, have no incentive to increase awareness about the new provision.

This 80 percent threshold is somewhat speculative, since there are no historical data on which to base an assumption; however, ROC staff relied on the outcomes of previous research studies on the estimated percentage of underreporting of work-related injuries (20 to 25 percent) as a reasonable comparison.

The learning curves used were modified versions of the Reed-Frost Epidemic Model.

Although not all of these projected 6,045 employees will truly be eligible for additional benefits based on multiple employment (since the provision is only effective for the last two months of the fiscal year), ROC included them in the epidemic model, assuming some likelihood that they would transfer information about the new provision to others. Only those 91 employees actually projected to be eligible were included in the cost and liability estimates for that year, however.

The amounts shown for each year are the cumulative liabilities incurred in that year and all previous years.

The SIF's balance was about $27.2 million, but a significant portion (about a third, in FY 2002) of this balance is reserved to pay LIBs and therefore is not considered an available asset.

See Texas Labor Code Section 403.007.

See TWCC Rule 132.10.

The delay could be due to several factors. Insurance carriers typically take some time to determine whether or not an eligible beneficiary exists on a death claim; in some cases, a beneficiary may cease to be eligible; in others, an employee may suffer a compensable death some time after the date of injury. This lag calculation is based on 143 SIF death benefit claims which could be matched to actual claims data to determine the injury date.

Projection based on average payments made between 1996-2001 as shown in the SIF's accounting records.

See Texas Labor Code Section 403.006 (b)(1).

See Texas Labor Code Section 403.006 (b)(2).

See Texas Labor Code Sections 403.006 (b)(3) and 413.0141.

See Texas Labor Code Sections 403.006 (b)(4) and 408.0221.

It is not yet certain how the actual payout from the SIF for these studies will occur. In deciding how to account for the $1.5 million, ROC considered the fact that TWCC has entered into a $335,250 contract with a feasibility consultant, an amount likely to be spent in FY 2003, and is likely to issue a second contract related to network feasibility that same year. It is assumed, although not certain, that the remaining amount will be spent in FY 2004. It is also possible that not all of the $1.5 million will be spent, in which case more available assets will remain in the SIF.

In calculating mortality, ROC used a "point in time" calculation rather than re-calculating mortality each year. For example, if an 80-year-old SIF LIBs recipient in FY 2002 has a two-year life expectancy, ROC's method would drop this individual from the SIFs payment liabilities in FY 2004. Alternately, one could re-project the mortality for this individual each year, but this would mean that no SIF LIBs recipient would ever be dropped from the liabilities, although their remaining life expectancy might be extremely short.

See Texas Labor Code Section 408.161 (c).

A lag appears to exist in the time between the injury date of an employee who eventually qualifies for LIBs paid from the SIF and when those SIF LIBs payments begin. For this reason, the ROC used an approximate two-year lag time before the first payment from the SIF, and added a significant "catch-up" payment that would be needed for each new eligible injured employee. It should be noted that this two-year lag was estimated based on a very small number of claims for which payment information from the SIF's records could be matched to actual claims data showing the date of injury (only 4 to 6 total claims), and some consideration of the shorter lag on non-SIF LIBs payments.

These figures indicate the estimated amounts of money needed to pay out all LIBs claims for the life of the claims. It does not indicate that this much money will be paid in a given year, but that it must be reserved (on a cash or present value basis) from the SIF's overall balance to ensure that the claims can be paid.

See Texas Labor Code Section 403.007 (f).

These are accounted for in the year they are expected to be reimbursed from the SIF, rather than the year in which they are filed or a decision favorable to the carrier is made.

TWCC provided information on this payout plan in late July 2002, just after the adoption of revised TWCC Rules 116.11 and 116.12, related to the SIF. It should be noted that the information provided by TWCC on the planned October payout schedule, which was received after press time, could alter the ROC's previous projections of the present value liabilities of the SIF for multiple employment-based reimbursements. ROC's calculations did not assume as long a lag before reimbursement from the SIF as this payout plan would allow. The effect of incorporating longer lags would be to lower the present value liabilities on the SIF and bears consideration in future projections.

Employers are also likely to insist that carriers pursue reimbursement diligently, to ensure that employer premiums reflect their payroll and experience rather than those of other employers.

Reimbursement for an overturned interlocutory order requires a carrier to show that the TWCC order has been overturned by a subsequent decision of TWCC or a court. Particular issues involved in the interlocutory order reimbursement procedure may tend to drive the reimbursement percentage lower, but these would likely not be present in multiple employment requests. For example, a significant number of interlocutory order reimbursement requests have been denied by TWCC because the interlocutory order was not overturned by an official proceeding, but rather "reversed" by a designated doctor's decision. This supports the point that more mitigating factors are likely present in interlocutory order requests than in multiple employment-related requests.

See TWCC Rules 116.11 and 116.12.

See Texas Labor Code Section 403.007(e).

See Texas Labor Code Section 403.006(d).

In addition, TWCC Rules 116.11 and 116.12, related to SIF payments and revised in July 2002, stipulate that if partial payments of multiple employment and initial pharmaceutical reimbursements are made to carriers, no outstanding obligation remains for the SIF; the partial payment is considered payment in full as far as the SIF's liability for the particular payment submitted for reimbursement.

The former figures are instructive in projecting the potential liabilities of the SIF. The latter figures will come closer to projecting the actual year-end available balance of the SIF.

Interestingly, under the four-year learning curve scenario, the SIF's year-end available assets would not peak until the end of FY 2004 at about $26.3 million (cash value) or $27.7 million (present value), since TWCC does not plan to make any multiple employment-based reimbursements until early in FY 2004, and these are likely to be relatively small under that scenario.



For more information contact:

Last updated: 09/06/2014

Contact Information and Other Helpful Links

Translation by WorldLingo


Translation by WorldLingo


Translation by WorldLingo