WORKERS’ COMPENSATION PREMIUMS – SECTION 1

The Department of Human Resource Management (DHRM) recommends workers’ compensation premiums equal to the cash flow needs of the program. Actual FY 2020 and FY 2021 premiums shown for comparison.

Actual FY 2020 Premium: $83,235,679
Actual FY 2021 Premium: $78,905,496

Actual FY 2020 Premium Plus WCA Repayment: $84,444,146
Actual FY 2021 Premium Plus WCA Repayment: $80,624,887

Recommended FY 2022 Premium: $77,121,714
Recommended FY 2023 Premium: $77,897,724

Recommended FY 2022 Premium Plus WCA Repayment: $79,432,604
Recommended FY 2023 Premium Plus WCA Repayment: $80,208,614

• The statewide experience modification factor dropped from 1.06 to .940.

• The required statewide premium calculated for FY 2022 decreased 2.3% from FY 2021 premiums (approximately $1,783,782 before settlement repayment).

• The updated estimated undiscounted reserve is calculated to be $95.6 million lower than last year’s calculation.

• The Working Capital Advance settlement program is proving to be a contributor to the lower than expected incurred loss development during the fiscal year and the reduction in the undiscounted reserve can be at least partially attributed to these settlements.

SETTLEMENTS – SECTION 2

Third Party Settlements

Five Workers’ Compensation claims involved in third party suits settled during Fiscal 2020, avoiding $451,968.65 in expected future costs. Exhibit C provides a list of all settlements reached during the course of third party settlements(*1). Cost avoidance is calculated as follows:

Total Case Reserves (Future Exposure): $681,968.65
Total Settlement Amounts: $230,000.00
Cost Avoidance due to Settlements: $451,968.65

Working Capital Advance Settlements

In FY 2020, the Department of Human Resource Management

• Completed settlements on 49 workers’ compensation claims under the Working Capital Advance authorized in Chapter 1289, 2020 Virginia Acts of Assembly, Item 83, F.3.a;

• Produced $13.84 million in cost avoidance due to accelerated closure of the claims; and

• Continued to evaluate claims for accelerated closure.

Recommendation

The Department of Human Resource Management recommends continuing a budget provision for the Working Capital Advance to support accelerated closure of certain claims. The Working Capital Advance settlement program has proved to be a significant contributor to the lower than expected incurred loss development during the fiscal year and the reduction in the undiscounted reserve can be at least partially attributed to these settlements.

The joint effort by the Department of Human Resource Management staff who suggested cost containment through settlements and the Department of Planning and Budget staff who developed the Working Capital Advance vehicle to make the idea possible has produced positive results for the program:

• Actual results achieved by settling 192 claims have already produced documented cost avoidance of $50.72 million. The required statewide premium calculated for FY 2022 decreased 2.3% from FY 2021 premiums (approximately $1,783,782) before settlement repayment).

• The updated estimated undiscounted reserve is calculated to be $95.6 million lower than last year’s calculation.

LOSS CONTROL PROGRAM – SECTION 3

The program’s actuary, Oliver Wyman produced an updated actuarial report entitled 2020 Workers’ Compensation Experience Statistics by Agency based on reported losses as of June 30, 2020 (Exhibit E).

Agencies with the most adverse loss history identified in the 2020 report are:

• Department of Motor Vehicles

• Virginia State Police

• Department of Wildlife Resources

• Department of Juvenile Justice

• Department of Behavioral Health and Developmental Services

o Mental Health Treatment Centers
o Intellectual Disabilities Training Centers
o Virginia Center for Behavioral Rehabilitation

• Department of Corrections

• Department of Veterans Services

• Virginia Alcoholic Beverage Control Authority

The list remains the same as 2019.

Recommendation

The Department of Human Resource Management recommendation is:

• Continue development of agency-specific action plans and consulting work to reduce the frequency and severity of workers’ compensation claims; and

• Continue the loss control consulting work initiated in FY 2020 with the previously identified agencies.
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(*1) The settlements contained in this section do not include the settlements made under the Working Capital Advance authorized in Chapter 1289, 2020 Virginia Acts of Assembly, Item 83, F.3.a; to settle certain workers’ compensation claims in FY 2020. Those settlements are reported in Section 2, Working Capital Advance Settlements.