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BILL AS PASSED BY SENATE 2007-2008

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S.345

AN ACT RELATING TO LOWERING THE COST OF WORKERS’ COMPENSATION INSURANCE

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  FINDINGS

     (a)  The General Assembly finds as follows:

1.  The Workers’ Compensation Program was established by the Vermont General Assembly in 1915 to compensate and protect employees who suffer personal injury by accident arising out of and in the course of employment; and, to protect employers by limiting their exposure to lawsuits on the account of injuries arising out of work injuries. Further, the program benefits the general public by reducing reliance on taxpayer funded public assistance.

2.  The National Council on Compensation Insurance is the largest provider of workers’ compensation and employee injury data and statistics in the nation.  In Vermont, NCCI recommends to the state Department of Banking, Insurance, Securities and Health Care Administration proposed workers’ compensation voluntary market loss costs and assigned market rates by classification codes.

3.  Under the workers comp classification system, insureds are assigned to defined business classifications using the one classification that best describes the routine business of the employer.

4.  Class ratemaking is based on five years of payroll and loss data specific to the class code.  Every year, the oldest year drops off and the newest year of data rolls on.  The 2007 class code calculations were based on the five year period from July 1999 to June 2004; in 2008, from July 2000 to June 2005.

5,  In March 2008, the Department of Banking, Insurance, Securities and Health Care Administration approved an average 4.2% decrease in voluntary market loss costs, and an average 4.2% decrease in assigned market rates.  The approved decrease in voluntary market loss costs was the largest decrease in a decade, enabling many Vermont employers to enjoy a modest decrease in workers’ compensation premium costs.

6.  The 2008 filing decrease is mainly attributed to a decline in workplace injuries.  Two major cost drivers in the workers’ compensation system are frequency of claims and the seriousness of those claims.  However, medical costs continue to increase more rapidly than the rate of inflation, and the duration of claims continues to be a concern, creating upward pressure on system costs.

7.  While recent years have seen greater stability in workers’ compensation approved loss costs and rates, the comparative cost of workers’ compensation insurance in Vermont remains a issue of great concern to many Vermont employers. 

8.  The deployment of safety training programs and measures by Vermont employers and industry associations has helped to reduce the frequency of workplace injuries, which is the most effective way to reduce workers’ compensation costs.

9.  Although workplaces are safer in Vermont than in the past, the state still experiences a higher number of workplace injuries than many other states.  Higher injury and illness rates is one of many factors that present challenges to keeping workers’ compensation costs stable.

10.  Many important sectors of the Vermont economy – including sawmills, carpenters, loggers, hospital professionals, restaurants and ski areas – should experience modest decreases in workers’ compensation premium costs in light of the approved loss costs reductions.

11.  Vermont’s residual market share of 8.5% validates that worker’ compensation insurers perceive the Vermont Workers’ Compensation Program to be working effectively.  The residual market is less than half the size it was 5 years ago, meaning an increasing number of employers are able to find appropriate coverage in the voluntary market.  This allows those employers to benefit from competition between carriers in the voluntary market.  However, in certain industries – such as dairy farms – the lack of competition between carriers remains an issue of concern.

12.  Some Vermont employers with no or relatively few records of injuries are expected to enjoy premium rate reductions in excess of the recommendations proposed by NCCI.

* * * Agriculture – Dairy Farmers* * *

13.  Workers’ compensation costs for dairy farms remains an issue of great concern to the State of Vermont.

14.  Farming is inherently more hazardous than many, but not all, trades and professions.  And the pool of farmers to spread the risk is substantially smaller.  Looking at specific farming class codes, it is the farmers dealing with "hoofed animals" that seem to have the higher incidents, as compared to vegetable farmers and others in the agriculture sector.

15.  Rates for Class Code 0036 are increasing on average because of the frequency of claims, the extent of those claims (serious injuries and deaths), and because the risk is shared between fewer and fewer farmers as the number of dairy farmers have decreased. 

16.  In 2007, there were two dairy farm worker deaths.  Those claims are not reflected in the 2008 proposed rates.

17.  It is important to enhance and implement farm safety training programs. 

18.  The Vermont Farm Bureau, the state Agency of Agriculture, the U. S. Department of Agriculture, the UVM Extension Service, and other entities are working to develop enhanced farm safety training programs.   

Sec. 2.  FINDINGS; PURPOSE

(a)  The general assembly finds:

(1)  An increasing number of employers in Vermont and nationwide are improperly classifying individuals they hire as “independent contractors,” even when those workers should be classified as “employees” as these terms are legally defined. 

(2)  Employers may misclassify employees in an attempt to avoid their legal obligations under federal and state labor and tax laws, including laws governing minimum wage, overtime, prevailing wage, unemployment insurance, workers’ compensation insurance, wage payment, and income tax.

(3)  Employee misclassification has a significant adverse impact on the residents, businesses, and economy in Vermont because it deprives vulnerable workers of legal protections and benefits; reduces compliance with employment and safety standards; gives employers who misclassify employees an improper competitive advantage over law-abiding businesses; deprives Vermont of substantial revenues; and imposes indirect costs from decreased legitimate business activity and increased demand for social services.

(4)  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.

(5)  Historically, compliance and enforcement have been divided among various agencies, reducing efficiency and effectiveness.  Improved interagency cooperation, sharing information, and joint enforcement of serious violations are the most effective approaches to reducing incidents of employee misclassification.

(6)  Workers’ compensation premiums for farmers are going up, while most every other employer category is going down.  Farming is inherently more hazardous than many other trades and professions, and the pool of farmers to spread the risk is very small.

(7)  Agricultural workers suffer a higher frequency and more serious work injuries than others, particularly those working on farms with hoofed animals.

(8)  Providing incentives for improved farm safety, through comprehensive training programs and extensive outreach, will go a long way toward slowing workers’ compensation premium rates for farmers.

(9)  While a reduction in workers’ compensation benefits across the board may lower rates for every one including farmers for the short run, such a reduction would be at the expense of injured workers, while providing little incentive for improving safety for the long run.

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

* * * 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 TASK FORCE

(a)  There is created a workers’ compensation classification task force to be composed of 14 members to include the following members:

(1)  The commissioner of taxes or designee.

(2)  The commissioner of labor or designee.

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

(4)  The attorney general or designee.

(5)  The auditor of accounts or designee.

(6)  Two members of the house, one from the committee on commerce and one from the committee on ways and means to be appointed by the speaker.

(7)  Two members of the senate, one from the committee on economic development, housing and general affairs and one from the committee on finance to be appointed by the committee on committees.

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

(9)  Four 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)  Two members who represent labor.

(B)  Two members who represent management.

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

(c)  The task force shall:

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

(A)  Coordination of systematic investigations and enforcement of employee misclassification among appropriate governmental entities and law enforcement organizations.

(B)  Improved speed and efficiency of the exchange of information among appropriate government entities about suspected employee misclassification in order to improve the prevention, investigation, and enforcement of employee misclassification.

(C)  Improved outreach to and public education for businesses and labor to promote wider understanding and compliance with requirements for classifying employees and the costs associated with misclassification in order to identify incidents of misclassification and to encourage filing of complaints and identification of potential violators.

(2)  The task force shall issue a interim 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 interim report shall outline the task force’s progress in addressing the issues of the final report, and the final report shall outline findings and recommendations regarding all the following:

(A)  A description of the efforts and successes within state government to reduce the frequency of employee misclassification, including the number of employers cited for violations related to misclassification, a description of the types of misclassification 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, including the issues raised in Vermont Courier v. Vermont Department of Employment and Training, 166 VT. 639 (1977).

(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 provision for the study to have been required by this section is to be considered for inclusion in the 2009 omnibus appropriations act.

* * * Safety Incentives * * *

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

The provision for the study to have been required by this section is to be considered for inclusion in the 2009 omnibus appropriations act.

* * * 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 may then 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 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 policy 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 the commissioner of labor 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 continue 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 counsel established in 21 V.S.A. § 1306 to review current practices and activities in the following areas:

(1)  Providing timely notification to all claimants who have been out of work for 90 consecutive days of their rights, responsibilities, and opportunities for vocational rehabilitation services and screenings and 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 commence rulemaking to improve deficiencies found in the review required in subsection (a) of this section and shall submit to the house committee on commerce and the senate committee on economic development, housing and general affairs a written report explaining the reasons for the rules to be adopted. 

* * * 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, 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

The provision for the study to have been required by this section is to be considered for inclusion in the 2009 omnibus appropriations act.



Published by:

The Vermont General Assembly
115 State Street
Montpelier, Vermont


www.leg.state.vt.us