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HOUSE PROPOSAL OF AMENDMENT 2007-2008

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S.345

An act relating to lowering the cost of workers’ compensation insurance

The House proposes to the Senate to amend the bill by striking all after the enacting clause and inserting in lieu thereof the following:

Sec. 1.  FINDINGS AND PURPOSE

(a)  The general assembly finds the following:

(1)  The workers’ compensation program was established in 1915 to dispense with the concept of negligence by providing compensation to any employee who is injured on the job and to limit employers’ exposure to lawsuits for negligence in the workplace.  In addition, this program removed the need for injured employees to rely on tax-funded public assistance programs.

(2)  The National Council on Compensation Insurance, NCCI, the nation’s largest provider of workers’ compensation and employee injury data, recommends to the Vermont department of banking, insurance, securities, and health care administration proposed workers’ compensation voluntary market loss costs and assigned risk market rates by classification codes.

(3)  In March 2008, the department of banking, insurance, securities, and health care administration approved an average 4.2 percent decrease in both the voluntary market loss costs and assigned risk market rates, representing the largest decrease in a decade.  This decrease provided many Vermont employers, including sawmill, logging, and carpentry operations, hospitals, restaurants, and ski areas, with a modest decrease in their workers’ compensation premiums.  Other Vermont employers with good safety records may enjoy even higher premium rate reductions.

(4)  The decrease is attributed mainly to a decline in workplace injuries.  Two major cost drivers of workers’ compensation premiums are the frequency of claims and the seriousness of claims.  Another cost driver is medical costs which are increasing more rapidly than the rate of inflation.  The duration of claims also adds to workers’ compensation costs.

(5)  Despite recent stability in workers’ compensation rates, the comparatively high cost of workers’ compensation insurance in Vermont remains an issue of great concern to many Vermont employers.

(6)  The increased implementation of safety training programs and measures by Vermont employers has reduced the frequency of workplace injuries, which is the most effective way to reduce workers’ compensation costs.

(7)  The fact that only 8.5 percent of the Vermont employers are in the residual market validates that workers’ compensation insurers perceive that the Vermont workers’ compensation program is working effectively.  The residual market is less than half the size it was five years ago indicating that many employers have found appropriate coverage in the voluntary market, in which employers can benefit from competition between carriers.  The lack of competition among carriers for certain industries such as dairy farming presents a disadvantage for those industries.

(8)  Workers’ compensation premiums for farmers are increasing while premiums for most other employer categories are going down. Farming is inherently more hazardous than many other industries, and the pool of farmers to spread the risk is small.  Agricultural workers have a higher frequency and suffer more serious work injuries than other workers, particularly those working on farms with hoofed animals.

(9)  It is important to provide incentives to improve farm safety through comprehensive training programs.  Extensive outreach and safety education will go a long way toward reducing workers’ compensation premium rates for farmers.  The Vermont farm bureau, the agency of agriculture, the U.S. department of agriculture, the university of Vermont extension service, and other organizations are working to develop enhanced farm safety training programs.

(10)  A significant number of employers are improperly classifying employees as “independent contractors” either due to a lack of understanding or knowingly to avoid legal obligations under federal and state labor and tax laws governing payment of wages, unemployment insurance, workers’ compensation, and income and social security taxation.

(11)  Misclassification of employees as “independent contractors” adversely impacts the Vermont economy because it deprives workers of legal protections and benefits; reduces compliance with employment and safety standards; gives employers who misclassify an improper financial competitive advantage over law-abiding businesses; deprives the state of substantial revenue; and imposes indirect costs from decreased legitimate business activity and increased demand for social services.  A recent survey of workers’ compensation insurers conducted in compliance with No. 57 of the Acts of 2007 reveals that misclassification is a significant problem that may add 10 to 20 percent or more to the cost of workers’ compensation.

(12)  Historically, compliance and enforcement have been divided among various governmental entities, which reduces efficiency and effectiveness.  Improved cooperation, sharing information, and joint enforcement of serious violations would be effective approaches to reducing employer misclassification.

(13)  While a reduction in workers’ compensation benefits would lower workers’ compensation premiums across all class codes, this reduction would be at the expense of injured workers and provide little incentive for improving safety.

(b)  Therefore, it is the purpose of this act to address the problems of employee misclassification and miscoding, improve farm safety, and make other positive changes to the workers’ compensation laws that are intended to reduce the cost of workers’ compensation.

Sec. 2.  DEFINITIONS

For the purposes of this act:

(1)  “Misclassification” means improperly classifying employees as independent contractors for the purposes of workers’ compensation insurance or unemployment insurance, as the context dictates.

(2)  “Miscoding” means the improper categorization of employees under the national council on compensation insurance (NCCI) worker classification codes, which account for varying levels of risk attributable to different job types for the purposes of determining workers’ compensation insurance premiums.

* * * Fraud and Misclassification * * *

Sec. 3.  8 V.S.A. § 4750(b) is amended to read:

(b)  The commissioner may require an insurer to file annually its anti-fraud plan with the department and an annual summary of the insurer’s anti-fraud activities and results, including misclassification and miscoding.  A workers’ compensation insurer shall file an anti-fraud plan with the department of labor, including information about fraud investigations, referrals, or prosecutions involving Vermont workers’ compensation claims, misclassifications, and miscoding, if requested by the commissioner of labor.  Information regarding fraud investigations and referrals shall not be public unless the commissioner of labor or the attorney general commences administrative or criminal proceedings.

Sec. 4.  13 V.S.A. § 2031 is amended to read:

§ 2031.  INSURANCE FRAUD

(a)  Definitions.  As used in this section:

* * *

(2)  “Insurance policy” has the same meaning as in 8 V.S.A. § 4722(3) and includes a workers’ compensation policy issued pursuant to chapter 9 of Title 21.

(3)  “Insurer” has the same meaning as in 8 V.S.A. § 4901(2) and includes a workers’ compensation insurer pursuant to chapter 9 of Title 21.

(4)  “Person” means a natural person, company, corporation, unincorporated association, partnership, professional corporation, agency of government, or any other entity.

* * *

(g)  This section shall not apply to workers’ compensation fraud. Cases involving workers’ compensation fraud shall be prosecuted under section 2024 of this title.

(h)  The public policy of this state is that the standards of this section shall not apply or be introduced into evidence in any civil or administrative proceeding, whether to argue public policy, materiality, or for any other purpose.

Sec. 5.  CREATION OF WORKERS’ COMPENSATION EMPLOYEE
             CLASSIFICATION AND CODING TASK FORCE

(a)  There is created a workers’ compensation classification and coding task force to be composed of eight members to include the following:

(1)  The commissioner of labor or designee.

(2)  The commissioner of banking, insurance, securities, and health care administration or designee.

(3)  The attorney general or designee.

(4)  One member from the house committee on commerce to be appointed by the speaker.

(5)  One member of the senate committee on economic development, housing and general affairs to be appointed by the committee on committees.

(6)  A member from the insurance industry appointed by the American Insurance Association.

(7)  Two members appointed by the employer and employee members of the department of labor advisory counsel established in 21 V.S.A. § 1306 as follows:

(A)  One member who represents labor.

(B)  One member who represents management.

(b)  The task force shall meet as needed, and the legislative council shall provide administrative support.

(c)  For attendance at a meeting when the general assembly is not in session, the legislative members shall be entitled to the same per diem compensation and reimbursement of necessary expenses as provided to members of standing committees under 2 V.S.A. § 406.

(d)  The task force shall:

(1)  Investigate and analyze misclassification and miscoding of employees and offer recommendations to address the following:

(A)  Coordination, speed, and efficiency of communication among appropriate governmental entities and law enforcement organizations in the prevention, investigation, and enforcement of actual and suspected employee misclassification and miscoding.

(B)  Ways to improve outreach to and public education for businesses and labor to promote wider understanding of and compliance with the requirements for classifying and coding employees.  This outreach and education shall identify costs associated with misclassification and miscoding, help businesses identify incidents of misclassification and miscoding, and encourage filing of complaints and identification of potential violators.

(2)  The task force shall issue a progress report on or before January 1, 2009, and a final report on or before October 15, 2009.  Both reports shall be provided to the house committee on commerce and the senate committee on economic development, housing and general affairs.  The progress report shall outline the task force’s advancement in its investigation, and the final report shall outline the task force’s findings and recommendations regarding the following:

(A)  A description of progress made by state government to reduce the frequency of employee misclassification and miscoding, including the number of employers cited for violations related to misclassification and miscoding, a description of the types of misclassification and miscoding cited, the approximate number of employees affected, and the amount of wages, premiums, taxes, and other payments or penalties collected.

(B)  Administrative, legislative, or regulatory changes designed to reduce misclassification and miscoding of employees by improving public and business education, sharing information, and increasing the cooperation and efficiency of enforcement of employee misclassification.

(C)  A consistent, workable, and fair method for determining independent contractor status both in regard to workers’ compensation and unemployment compensation.

(D)  Any other issue relevant to reducing the incidences of employee misclassification and miscoding including a recommendation as to whether the task force should continue meeting and, if so, for how long.

Sec. 6.  FRAUD ENFORCEMENT STUDY; DEPARTMENT OF LABOR;
             DEPARTMENT OF BANKING, INSURANCE, SECURITIES, AND
             HEALTH CARE ADMINISTRATION

The department of labor in collaboration with the department of banking, insurance, securities, and health care administration , a participant designated by the Vermont Trial Lawyers’ Association, a participant designated by the Vermont Bar Association from defense attorneys representing employers, and the attorney general shall perform an assessment of the fraud problem and develop proposals for legislation that will improve the effectiveness and enforcement of the current fraud statutes, including specific recommendations for improving enforcement, stimulating interagency cooperation including information sharing and prosecution, and creating a fraud unit complete with proposals for staffing, reporting, structure, and funding.  The department of labor shall issue a progress report on or before February 1, 2009, and a final report on or before October 15, 2009.  Both reports shall be provided to the governor, the house committee on commerce, and the senate committee on economic development, housing and general affairs.  The progress report shall outline the department of labor’s advancement in its assessment, and the final report shall contain a comprehensive outline of the assessment and legislative proposals.


* * * Safety Incentives * * *

Sec. 7.  WORKERS’ COMPENSATION DISCOUNTS; IMPROVED
             EFFICIENCY AND SAFETY; STUDY; DEPARTMENT OF LABOR;
             DEPARTMENT OF BANKING, INSURANCE, SECURITIES, AND
             HEALTH CARE ADMINISTRATION

(a)  The department of labor and the department of banking, insurance, securities, and health care administration in consultation with the department of labor advisory council established in 21 V.S.A. § 1306 shall investigate and, as appropriate, propose specific legislation and administrative rules that affect the following:

(1)  Providing workers’ compensation premium discounts for employers whose employees have demonstrated the successful implementation and effectiveness of a workplace safety certification program.

(2)  Providing rate reductions for employers who implement an effective return-to-work program or a drug and alcohol prevention program, or both.

(3)  Reviewing the fairness of the distribution of workers’ compensation liability for preexisting conditions.

(4)   Surveying other state workplace safety discount programs to evaluate their effectiveness in improving workplace safety as well as their impact on premiums paid by nonparticipants.

(5)  Improving the rate of return to employment for claimants receiving permanent disability benefits by examining best practices for returning injured employees to work that have been used successfully by providers, employers, and relevant programs in Vermont and other jurisdictions.

(6)  Assuring the application of best practices to the vocational rehabilitation system in order to improve its functionality and effectiveness in increasing employability.

(7)  Identifying and facilitating the implementation of industry best practices and other methods designed to increase substantially workplace safety.   

(b)  The department of labor shall issue a progress report on or before February 1, 2009, and a final report on or before October 15, 2009.  Both reports shall be provided to the governor, the house committee on commerce, and the senate committee on economic development, housing and general affairs.  The progress report shall outline the department of labor’s advancement in its study, and the final report shall contain a comprehensive outline of the study, as well as suggestions for legislation and administrative rulemaking.

* * * First‑Aid‑Only Injuries and Deductible Policies * * *

Sec. 8.  21 V.S.A. § 640(e) is added to read:

(e)  In the case of a work‑related, first‑aid‑only injury, the employer shall file the first report of injury with the department of labor.  The employer shall file the first report of injury with the workers’ compensation insurance carrier or pay the medical bill within 30 days.  If the employer contests a claim, a first report of injury shall be forwarded to the department of labor and the insurer within five days of notice.  If additional treatment or medical visits are required or if the employee loses more than one day of work, the claim shall be promptly reported to the workers’ compensation insurer, which shall adjust the claim.  “Work‑related, first‑aid‑only‑treatment” means any one-time treatment that generates a bill for less than $750.00 and for which the employee loses no time from work except for the time for medical treatment and recovery not to exceed one day of absence from work.

Sec. 9.  21 V.S.A. § 687(e) is added to read:

(e)  All insurance carriers authorized to write workers’ compensation insurance coverage in Vermont shall make available, at the written request of the employer, a workers’ compensation insurance rate that contains a deductible provision that binds the employer to reimburse the workers’ compensation insurer for at least the first $500.00 of benefits, medical or indemnity, due to an injured employee.  Claims shall be adjusted and paid by the insurer, and the employer shall reimburse the insurer for the amount of the deductible.


* * * Evaluation of Permanent Impairment * * *

Sec. 10.  EVALUATION OF PERMANENT IMPAIRMENT; USE OF AMA
               GUIDES

Notwithstanding 21 V.S.A. § 648(b), the department of labor shall continue to use the American Medical Association Guides to the Evaluation of Permanent Impairment, fifth edition, until such time as the commissioner of labor, in consultation with the department of labor advisory council established in 21 V.S.A. § 1306, has evaluated an analysis of the sixth edition performed by NCCI or other appropriate rating agency to assure that adoption of the sixth edition will not have a significantly detrimental impact on injured workers entitled to permanent disability benefits.  At least 60 days before adopting the sixth edition, the department shall submit a written report to the house committee on commerce and the senate committee on economic development, housing and general affairs, outlining the analysis that formed the basis for determining that use of the sixth edition will not have a significantly detrimental impact on injured workers entitled to permanent disability benefits.

* * * Computation of Average Weekly Wage and COLA Adjustment * * *

Sec. 11.  21 V.S.A. § 650(a) and (d) are amended to read:

(a)  Average weekly wages shall be computed in such manner as is best calculated to give the average weekly earnings of the worker during the 12 26 weeks preceding an injury; but where, by reason of the shortness of the time during which the worker has been in the employment, or the casual nature of the employment, or the terms of the employment, it is impracticable to compute the rate of remuneration, average weekly wages of the injured worker may be based on the average weekly earnings during the 12 26 weeks previous to the injury earned by a person in the same grade employed at the same or similar work by the employer of the injured worker, or if there is no comparable employee, by a person in the same grade employed in the same class of employment and in the same district.  If during the period of 12 26 weeks an injured employee has been absent from employment on account of sickness or suspension of work by the employer, then only the time during which the employee was able to work shall be used to determine the employee’s average weekly wage.  If the injured employee is employed in the concurrent service of more than one insured employer or self-insurer the total earnings from the several insured employers and self-insurers shall be combined in determining the employee’s average weekly wages, but insurance liability shall be exclusively upon the employer in whose employ the injury occurred.  The average weekly wage of a volunteer firefighter, volunteer rescue or ambulance worker, volunteer reserve police officer, or volunteer as set forth in subdivision 1101(b)(4) of Title 3, who is injured in the discharge of duties as a firefighter, rescue or ambulance worker, police officer, or state agency volunteer, shall be the employee’s average weekly wage in the employee’s regular employment or vocation but the provisions of section 642 of this title relative to maximum weekly compensation and weekly net income rates, shall apply.  For the purpose of calculating permanent total or permanent partial disability compensation, the provisions relating to the maximum and minimum weekly compensation rate shall apply.  In any event, if a worker at the time of the injury is regularly employed at a higher wage rate or in a higher grade of work than formerly during the 12 26 weeks preceding the injury and with larger regular wages, only the larger wages shall be taken into consideration in computing the worker’s average weekly wages.

(d)  Compensation computed pursuant to this section shall be adjusted annually on July 1, so that such compensation continues to bear the same percentage relationship to the average weekly wage in the state as computed under this chapter as it did at the time of injury.  Temporary total or temporary partial compensation shall first be adjusted on the first July 1 following the receipt of 26 weeks of benefits.

* * * Temporary Total Two‑Year Review * * *

Sec. 12.  21 V.S.A. § 642a is added to read:

§ 642a.  TEMPORARY TOTAL; INSURER REVIEW

The employer shall review every claim for temporary total disability benefits that continues for more than 104 weeks.  No later than 30 days after 104 weeks of continuous temporary total disability benefits have been paid, the employer shall file with the department and the claimant a medical report from a physician that evaluates the medical status of the claimant, the expected duration of the disability, and when or if the claimant is expected to return to work.  If the evaluating physician concludes that the claimant has reached a medical end result, the employer shall file a notice to discontinue.

* * * Vocational Rehabilitation * * *

Sec. 13.  21 V.S.A. § 641(a)(1) and (c) are amended to read:

(1)  The employer shall designate a vocational rehabilitation provider from a list provided by the commissioner to initially provide services. Thereafter, absent good cause, the employee may have only one opportunity to select another vocational rehabilitation provider from a list provided by the commissioner upon giving the employer written notice of the employee’s reasons for dissatisfaction with the designated provider and the name and address of the provider selected by the employee. 

(c)  Any vocational rehabilitation plan for a claimant presented to the employer shall be deemed valid if the employer was provided an opportunity to participate in the development of the plan and has made no objections or changes within 21 days after submission.

(d)  The commissioner may adopt rules necessary to carry out the purpose of this section.


Sec. 14.  VOCATIONAL REHABILITATION; DEPARTMENT OF LABOR

(a)  The commissioner of labor shall consult with the department of labor advisory council established in 21 V.S.A. § 1306 to review current practices and activities in the following areas:

(1)  Insurance carriers providing timely notification to the department of labor of all claimants who have been out of work for 90 consecutive days and the department requiring immediate administrative enforcement for any failure to provide that notification.

(2)  Ensuring that all lost‑time claimants receive simple, understandable notices of their rights to and how to request vocational rehabilitation services no later than their receipt of their first workers’ compensation indemnity benefits.

(3)  Enabling timely review and resolution of insurance coverage and payment issues and other disputes arising in the development and implementation of vocational rehabilitation services.

(4)  Developing performance standards to measure the success of vocational rehabilitation plans and other appropriate approaches to increase the number of injured workers returning to suitable employment.

(b)  The department shall issue a written report to the house committee on commerce and the senate committee on economic development, housing and general affairs on or before March 15, 2009.  The report shall outline any deficiencies discovered under subsection (a) of this section and any rules to be adopted to solve the deficiencies.

* * * Attorney Fees * * *

Sec. 15.  21 V.S.A. § 678 is amended to read:

§ 678. COSTS; ATTORNEY FEES

* * *

(b)  In appeals to the superior or supreme courts, if the claimant, if he or she prevails, he or she shall be entitled to reasonable attorney’s attorney fees as approved by the court, and interest at the rate of 12 percent per annum on that portion of any award the payment of which is contested.  Interest shall be computed from the date of the award of the commissioner.

* * *

(d)  In cases that are not resolved pursuant to a formal hearing, the commissioner may award reasonable attorney fees if the claimant has retained an attorney in response to an actual or effective denial of a claim, a hearing has been requested, and thereafter payments are made to the claimant as a result of the attorney’s efforts. 


* * * Assistance to Claimants * * *

Sec. 16.  ASSISTANCE TO CLAIMANT; BARGAINING AGENT;
                RULEMAKING; DEPARTMENT OF LABOR

The department of labor shall adopt a rule that permits a representative of the claimant’s bargaining unit to provide informal assistance to a workers’ compensation claimant in regard to any claim for workers’ compensation benefits in all aspects except at a formal hearing.

* * * Farm Safety Programs * * *

Sec. 17.  FARM SAFETY PROGRAMS; AGENCY OF AGRICULTURE,
               FOOD AND MARKETS; STUDIES

(a)  The secretary of agriculture, food and markets in collaboration with the department of labor and the University of Vermont extension service shall:

(1)  In collaboration with farm organizations and other relevant organizations develop farm safety and occupational health best management practices for the protection of farm workers and shall develop educational programs that will enable farm workers to understand and comply with those best management practices.

(2)  In collaboration with the department of banking, insurance, securities, and health care administration and representatives of the insurance industry investigate the feasibility of developing a safety certification program for farms.  The investigation shall consider approaches to providing a premium reduction for farmers certified under such a safety certification program.

(3)  In collaboration with the University of Vermont extension service rural and agricultural vocational rehabilitation program (RAVR) develop rural and agricultural vocational rehabilitation best management practices for use by vocational rehabilitation counselors.

(b)  Administrative support shall be provided by the legislative council and the joint fiscal office.

(c)  The results and recommendations resulting from the studies required under subsection (a) of this section shall be presented in a written report to the senate committees on agriculture and on economic development, housing and general affairs and to the house committees on agriculture and on commerce on or before February 1, 2009.

Sec. 18.  FIRST-AID-ONLY INJURIES AND DEDUCTIBLE POLICIES;
               STUDY

By July 1, 2012, the department of labor shall report to the house committee on commerce and the senate committee on economic development, housing and general affairs on the utilization of 21 V.S.A. § 640(e) and 21 V.S.A. § 687(e).  The report shall summarize the frequency of use, the insurer experience, and realized cost savings of the provisions, as well as a recommendation of whether the provisions should be retained in statute, repealed, or terminated at a future point certain through the addition of a sunset provision.

Sec. 19.  DEPARTMENT OF LABOR STUDY OF SAFETY STANDARDS

               FOR FORESTRY AND FOREST PRODUCTS INDUSTRIES

(a)  The general assembly finds that workers’ compensation insurance rates for the forestry and forest products industries are significantly higher than industry rates in neighboring states and significantly higher than those of the vast majority of other industries within the state.

(b)  The commissioner of labor, in consultation with the commissioner of forests, parks and recreation shall convene a working group to develop safety standards for the forestry and forest products industries that will help reduce injury rates and workers’ compensation insurance rates for the industries.  In developing the safety standards, the commissioner shall use the safety standards adopted in other states, including Maine, as a guide.  On or before February 1, 2009, the commissioner of labor shall report to the house and senate committees on commerce, the house and senate committees on natural resources and energy, and the house and senate committees on agriculture with the results of the working group.  The report shall include:

(1)  Proposed safety standards for the forestry and forest products industries;

(2)  A recommended methodology for implementing the proposed safety standards in the forestry and forest products industries;

(3)  An estimate of the cost to implement the proposed safety standards, including the cost to the department of labor, the department of forests, parks and recreation, insurance providers, and members of the forestry and forest products industries; 

(4)  A proposed schedule for implementing the proposed safety standards.

(c)  The working group shall consist of:

(1)  The commissioner of labor or his or her designee;

(2)  The commissioner of forests, parks and recreation or his or her designee;

(3)  One member of the senate, appointed by the senate pro tempore;

(4)  Two members of the house of representatives, appointed by the speaker of the house;

(5)  Two members of the forestry industry appointed by the governor;

(6)  One member of the forest products industry appointed by the governor; and

(7)  One member of the insurance industry, appointed by the governor.

(d)  The working group may elect a chair and vice chair and may hold public hearings.  The department of labor and the department of forests, parks and recreation shall provide support for the working group.

(e)  All members of the committee shall serve on the committee for the duration of the working group unless circumstances dictate a permanent replacement, except that the legislative members shall serve for the term of their election.  Vacancies shall be appointed in the same manner as an original appointment.

(f)  Legislative members of the working group are entitled to per diem payment and reimbursement for expenses pursuant to 2 V.S.A. § 406.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us