Class Action Seeking Restitution for Non-Group Rated Employers for Policy Years 2001 through 2008
January 23, 2012 - Class Action Notice
April 7, 2011 - JE and Opinion Affirming Trial Court Decision
January 12, 2010 - Order Granting Class Certification
- Deloitte Consulting Report
- Deloitte Consulting Report - Executive Summary
- Aon Risk Consultants - Executive Summary
- First Amended Class Action Complaint for Equitable Relief
- Analysis of Group Rating Plan with Recommendations
- Group Loss Ratios 1999
- Exhibits
- Inspector General's Task Force - Report of Investigation
- Plaintiffs' Motion for Preliminary Injunction
- Premium Subsidies for Private-Sector Employers
- Defendant's Initial Brief in Opposition to Plaintiffs' Motion for Preliminary Injunction - Section 1, Section 2
- Reply Brief in Support of Plaintiffs' Motion for Preliminary Injunction - Section 1, Section 2
- Plaintiffs' Post Hearing Brief
November 18, 2008 - Hon. Richard J. McMonagle's Judgment Entry granting Preliminary Injunction against BWC
Testimony of Stuart Garson in front of the Ohio General Assembly in Opposition to HB 79:
- Exhibit 1: Plaintiffs' Post Hearing Brief
- Exhibit 2: Marsha Ryan Consumer Advisory
- Exhibit 3: Letter from Lee Fisher
- Exhibit 4: Ohio Inspector General Report (Excerpts)
- Exhibit 5: Deloitte Consulting Report (Excerpts)
- Exhibit 6: Judgment Entry Granting Preliminary Injunction
- Exhibit 7: Group Rating PowerPoint
My office represents the plaintiffs in San Allen, Inc dba Corky and Lenny's. v. BWC that is the subject matter of a pending amendment to the Revised Code recently discussed in committee on December 3rd. There has been a great deal of disinformation and confusion that is being circulated about this case and I felt compelled to address all of you in an attempt to clarify this matter. One of the more troubling comments that came out of committee was that the Injunction issued in this case, "could cost Ohio hundreds of thousands of jobs" .... There is a modern adage that says one is entitled to their own opinion but not their own facts. These are the facts.
The threat of job loss is completely contrary to every report and study the BWC has commissioned and issued in connection with the group rating program. Further the current program is in fact the incubator of job loss and small business stress and destruction in Ohio.
This matter was heard before Judge Richard McMonagle of Cuyahoga County, in an exhausting and thorough six day hearing. Substantial evidence was presented in this matter by the BWC, group sponsors, lobbyists and employers. At no time was any evidence presented or even suggested that fixing the group rating system would cost Ohio hundreds of thousands of jobs. Our position has consistently been for the BWC to provide premium equity to all Ohio employers and to follow the rating system mandated by R.C. 4123.29.
Attached is a Power Point presentation that was used in our case in the Preliminary Hearing (Exhibit 7), that outlines the actual evidence on this issue, obtained primarily from the BWC. Also attached is a consumer advisory from Marsha Ryan (Exhibit 2) explaining how the dysfunctional group rating system drives Ohio employers out of business. The same conclusion is expressed by Lieutenant Governor Lee Fisher (Exhibit 3). The Inspector General also found that the BWC was deficient in failing to address long ago the fundamental flaws in the group rating system. (Exhibit 4, p.11).
The Ohio BWC Group Rating system is fundamentally flawed, according to every expert who has examined the system on behalf of the BWC. The most recent Deloitte Consulting Report commissioned by the BWC is attached for your edification. In short, Ohio employers suffer inequitable workers' compensation rates and operate under a threat of massive rate increases from year to year that often destroy long-standing businesses. One of our class reps was an employer who was kicked out of group. It was paying a highly inflated rate. Last month it closed its doors and put 65 people out of work.
The group rating discounts are wildly excessive, representing undeserved discounts for many employers that are subsidized by excessive rates paid by others (Exhibits 2, 3, 5, & 7). The group rating system is susceptible to rate manipulation (Exhibits 5 & 7). By BWC's own admission, the current group rating plan inflates Ohio's workers' compensation base rates, making Ohio a less attractive place to conduct business while hurting Ohio's economy.
A group of employers, brutalized by the current group rating program filed a class action lawsuit in the Cuyahoga County Court of Common Pleas seeking to fix the system and obtain restitution for years of BWC unlawfully inflated premium bills. After an intensive evidentiary hearing Judge Richard McMonagle issued an Injunction barring the BWC from continuing its unjust rating system. We simply do not understand why the legislature would even consider legislating around the Judge's order in light of the overwhelming evidence of abuse and dysfunction in the current group rating system.
The fact is that eleven separate reports, costing substantial dollars, unanimously concluded that the group rating system as it is currently structured generates inaccurate and inequitable rates, hurting Ohio's economic competitiveness. Please review Marsha Ryan's consumer advisory letter and Lt. Governor Fisher's letter for confirmation (Exhibits 2 & 3). All 11 studies commissioned by the BWC agree that the excessive group discounts greatly inflate Ohio's base rates, a fact, the BWC has repeatedly admitted.
The evidence at the hearing proved beyond "clear and convincing" evidence that the group rating methodology is actuarially flawed, excessively rewarding random good fortune, overly penalizing random bad fortune, and in the end using a formula that bears no relation to sound insurance rate-making. The entire purpose of rate-making, and in particular experience rating, is to more closely align the premium charged with the risk presented by the individual employer. It was proven that the current group rating plan does the exact opposite and violates Ohio law. In fact the BWC has tacitly admitted that the group rating system is actuarially unsound (Exhibit 7, pp.16, 17, 18, 20, 22, 25, 31).
Two of the earliest reports commissioned by the BWC to examine and review the group rating system were done by Mercer Consulting in March of 1990 and August of 1991. Mercer concluded the following: (from Exhibit 7)
1. The current method of group rating significantly reduces the actuarial equity in workers' compensation rates for employers in the State of Ohio; (p.29)
2. The credibility assigned to an individual employer's experience are therefore less accurate; (p.29)
3. Some employers are paying more than their experience justifies while others are receiving more credit than they deserve; ( p.29)
4. Base rates will need to be "artificially" higher to offset the additional credits caused by group rating. (p.29)
Safeguards suggested by Mercer were: (from Exhibit 7)
1. All members of the sponsoring organization should be given the opportunity to join the rating group to prevent the formation of groups whose claim experience is abnormally good; (p.28)
2. Members of the rating group should be compelled to keep the group's rating for at least three years. (p.28)
3. Change group rating to be "Retrospective" (which R.C. 4123.29 already requires); (p.30)
4. Use current Loss Experience of group to determine current rates. (p.30)
Plans that use this criteria "have proven to be effective in encouraging additional safety and loss control efforts. Using current experience of the group emphasizes current safety efforts, and is not subject to artificial manipulation." (p.30) Everything predicted by the Mercer report has come to pass.
Deloitte Consulting, the latest of these commissioned reports, studied the group rating methodology and opined, like all the other experts who have done so, that the methodology is flawed at its core and cannot generate accurate rates. (Exhibit 5, p.32)
The group experience rating process is inconsistent with two basic tenets of an experience rating plan: (Exhibit 5, p.32)
1. The plan should produce post experience rated loss ratios which are closer to the overall average than before experience rating; (p.32)
2. The plan should balance stability of price with responsiveness. (p.32)
Group experience rating accomplishes neither and in fact: (Exhibit 5, p.32)
1. Exacerbates the post experience rated loss ratios so that there is more dispersion about the average loss ratio than less; (p.32)
2. Policyholders ... experience significant variability in their pricing as they move in to a group, to another group, or out of group, which occurs frequently. (p.32)
Other significant findings by Deloitte Consulting are: (Exhibit 5, p.33)
1. The turnover of groups is very high at 75-80%; (p.33)
2. This lack of stability is indicative that groups are functioning poorly. (p.33)
3. Creates large dispersions in the loss ratios in groups from year to year which indicates that group rating needs to be discontinued in its present form. (p.34)
Group Rating fails as a model when it uses an experience rating formula and then applies it to a group of employers. (p. 35). "Studies of BWC's group rating program have consistently demonstrated that applying the individual experience rating formula to group experience has resulted in significant under-prediction of losses for groups." (p. 36) "The poor performance of the individual experience rating formula when applied to groups is evidence of the flaws in the current approach to group rating, and indicates a need for a different approach to group rating."(p.36) "We are unaware of any other state that has a program which functions similarly to group rating as it exists in Ohio." (p.32)
What the current group rating system does do very well is to encourage employers to "game" and manipulate their premiums by incentivizing: (Exhibit 5, p.39)
1. Behaviors focused on achieving the maximum group credit; (p.39)
2. Retaining "loss-free" employers in groups; (p.39)
3. Excluding employers from groups if their losses impact the group credit; (p.39)
4. Churning of employers to different groups, new groups, or out of groups, driven by group rating impact; (p.39)
5. Programs such as the $15K medical only and salary continuation, to keep claims out of group rating and (out of the workers' compensation system.); (p.39)
6. The one claim program, driven by reducing the premium impact between group and non-group status. (p.39)
Finally Deloitte Consulting flatly refuted the mantra that is always chanted in defense of group rating that it encourages safety (Exhibit 7, p.33). In fact the report found that increases and decreases in rates have no effect on accident frequency or severity. In sum, after spending substantial dollars to study the group experience rating plan, all of the experts conclude that the plan accomplishes nothing more than granting huge discounts at other employers' expense, just as Mercer predicted in one of the first studies back in 1990. There is not a single study that defends the current flawed group experience rating plan.
What is required is a system that promotes an equitable premium based upon the BWC's own slogan of "Right rate for the right risk". The overwhelming empirical evidence presented in our case, demonstrates that this is not happening. The current system promotes chaos and not order in the premium structure.
We are at a loss to explain the BWC's blind spot for the non-group employer community of 85,000 to 100,000 companies, who have in effect been told it is acceptable and even lawful for them to continue to pay for and subsidize the claim losses of the privileged group employers. This is bad public policy and has placed an onerous burden upon Ohio's small businesses. Fortunately for our clients, Ohio's small business community and injured workers, Judge Richard McMonagle found the current group rating system hopelessly wanting, unlawful and ordered it simply to comply with Ohio Law. That should be everyone's objective and those that would advocate otherwise are perpetuating the dysfunction in the current group rating system.
Respectfully submitted,
Stuart I. Garson
