NOVEMBER 18, 2016: California’s insured employers will be paying 3.11% of their workers’ comp premium next year to fund the state’s workers’ comp system, as well as safety and health oversight, labor law enforcement and anti-fraud efforts. The total includes 1.11% to fund operations at the Department of Industrial Relations – a 10% (1/10 of 1%) increase – and an additional 2% to continue to support the California Insurance Guarantee Association and to pay for past insurance company failures.

Self-insured employers, however, will be paying a slightly lower effective assessment rate. Self-insured employers’ assessments are calculated as a percentage of indemnity paid to injured workers. The slightly lower assessment this time around is 6.87% compared to 7.13% last year.

State officials note that it is uncommon for one class of employers to be paying more and the other less in any given year, but say it is driven this year by a shift in the mix of insured and self-insured payroll in the state. Overall, the insured population increased its share of the market over the past year and thus is taking on a higher proportion of the system’s costs.

Adding to insured employers’ assessment is the changing dynamic of the insured market. In recent years written premium had been growing at double-digit rates which lead to carriers collecting more than was anticipated when the assessment rates were calculated. Assessment rates are calculated based on the prior year’s written premium total, in this case, 2015, but are collected at the effective premium rate for the assessment year. Last year the rate of growth dipped significantly, so there were fewer over collections to offset next year’s assessment.

Fund Adjustments

DIR’s annual assessments include relatively small increases to fund the state’s Occupational Safety and Health Fund and the Labor Enforcement and Compliance Fund. Assessments for the LECF are up $17.5 million while the OSHF fund assessment is up nearly $9.4 million (see chart). The increases are driven by earlier staffing expansions, bargained wage increases and particularly for the LECF legislative directives. Officials note that the fund assessments include some estimates for expected salary increases as some unions are still in negotiations and warn that there may need to be a reconciliation in the future if the unions win larger than expected raises.

The better news for employers is that the catchall Workers’ Compensation Administration Revolving Fund and the Workers’ Comp Fraud Fund are both generating lower assessments this year. The anti-fraud fund assessment is down $4.2 million as there were funds left over from last year. The WCARF assessment is down $11 million with much of the savings stemming from an increase in revenue from lien filings. The $150 lien filing fee directly offsets the assessments that employers pay to fund the system.

DIR officials say assessment letters will be in the mail before the end of the month.

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