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Home My WebLink AboutIR 6938 INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 6938 �pP T f A,. 0Rryp To the Mayor and Members of the City Council May 29, 1984 rrfxpp Subject: PRaTECTED WORKERS COMPENSATION FUND DEFICIT 187 FOR THE CURRENT FISCAL YEAR The City of Fort Worth budgeted $2,214,431 to fund Worker's Compensation expenses for fiscal year 1983-84. Actual Worker's Compensation expendi- tures for the first eight months of this fiscal year are approximately $1,888,238. A sum of $326,000 remains to fund Worker's Compensation claims for the remainder of this fiscal year. However, it is estimated that an additional amount of $700,000 will be required to fund Worker's Compensation claims from July through September. To finance the estimated $700,000 needed to fund Worker's Compensation claims for the reminder of this fiscal year, it is suggested that departments contribute $500,000 to the Worker's Compensation fund account by prorating the total amount of claims charged to each City department as determined by the cost experiences of fiscal years 1981-82, 1982-83, and the first five months of 1983-84 (Attachment I). The remaining $200,000 can be transferred to the Worker's Compensation account from the Unemployment Compensation Fund which has a more than adequate surplus at this time. Several factors have contributed to the underestimation of funding requirements for the Worker's Compensation fund for this fiscal year. First, all claims incurred since 1975 were adjusted by Texas Employers Insurance Association through a contract with the Texas Municipal League. Subsequent to the Personnel Department's budget proposal to the Office of Management Services for Worker's Compensation coverage, the Texas Municipal League changed adjusting companies. It then was deter- mined that the City should seek bids for claims service. City Council approved Texas Employers Insurance Association as the adjusting agency for injuries which occurred during the bid process (October 1, 1983, through December 31, 1983) . Following the bidding procedure, Council selected Underwriters Adjusting Company as the agency to provide claims service for injuries occurring after January 1, 1984. The Texas Munici- pal League contract provides claims service for injuries which occurred before October 1, 1983. Contractural agreements with Underwriters Adjusting Company and the Texas Municipal League require the City to provide escrow accounts for funds available to pay bills as they are received by the adjusting conpany. During the budget preparation pro- cess, Personnel anticipated that monetary adjustments would be necessary for the Texas Municipal League Escrow Fund, but the establishment of a new escrow fund with Texas Employers and Underwriters Adjusting Company was not foreseen. The Texas Ecplcyers and Underwriters Adjusting Com- panies' escrow requirements were $55,000 and $150,000, respectively. ISSUED BY THE CITY MANAGER = FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 6938 - Page 2 �IPT f q fC `{o4�VOR(T,j� To the Mayor and Members of the City Council May 29, 1984 A.rexP`' Subject: PROTECTED WORKERS COMPENSATION FUND DEFICIT FOR THE CURRENT FISCAL YEAR Secondly, medical expenses .and inflation associated with medical care continues to present problems in the budgeting process. For example, the medical costs for the first quarter of this fiscal year exceeded those of the same period last year by more than twenty percent. Another unknown during the budgeting process is the weekly Worker's Compensation rate for the future fiscal year. This rate is normally unknown until several months after budget input. This Worker's Compensation rate is significant in that it is the basis of payments for weekly benefits and the calculation of disability settlements. The City's procedure for Worker's Compensation planning has been a "Pay As You Go Plan," and a reserve system to pay for incurred losses asso- ciated with injuries of previous years has not been established. During any fiscal year, the bulk of Worker's Compensation costs result from injuries which occurred during previous years. For example, during the first eight months of this year, only $372,800 of the total expenditures are associated with injuries which occurred this year. The balance of the expenditures has been for escrows ($205,000) and for injuries from previous years (approximately $1,310,000 for 1975-1983). Each addi- tional year into the program, it becoames more difficult to project those costs associated with injuries from previous years. An established system of reserving for the future costs of each year is necessary to eliminate the "crystal ball" approach associated with the "Pay As You Go Plan." During the two previous years as well as this year, the amount of funds spent for disability settlements has escalated. The number of disabil- ity settlements and costs increase as more injured employees learn of possible eligibility and proceed to file claims with the Industrial Accident Board and engage attorneys to represent them in these claims. Another major factor in the increased cost of settlements is the basis used to determine the value of disability settlements. The Worker's Compensation benefit rate is the determining factor and has inflated rapidly. For example, during fiscal year 1976-77, the weekly benefit rate was $77 and the value of a total and permanent disability was approximately $31,000. By fiscal year 1983-84 the weekly rate had escalated to $189 and the total and permanent disability value is cur- rently $75,789. During fiscal year 1984-85, the benefit rate will be $203 weekly and the total and permanent disability value will be $81,403. A recent legislative change also has had a significant impact on the City's costs for disability settlements. This change established preferential setting for Worker's Compensation cases in District ISSUED BY THE CITY MANAGER -- FORT WORTH, TEXAS INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 6938 - Page 3 �I.P T(q,,, E fURI To the Mayor and Members of the City Council May 29, 1984 roc-4j-��P `v rTEXP`'+ Subject: PROJECTED WORKERS COMPENSATION FUND DEFICIT 1073 FOR THE CURRENT FISCAL YEAR Courts. Before the change,' plaintiff attorneys, realizing that cases put into litigation would not reach trial for several years, were more inclined to settle at figures considered reasonable by the City. The change shifted the advantage of litigation from the City to the plain- tiff. Another major factor contributing to increased Worker's Compensation costs during the past several years has been the practice of employing individuals without the benefit of pre-employment physicals. As a result, the City has hired a number of employees with pre-existing defects and in so doing, has become responsible under Worker's Compensa- tion when the pre-existing condition was aggravated at work. Many seri- ous and expensive Worker's Compensation injuries could have been avoided by pre-employment screening. It will be recommended in the proposed budget for fiscal year 1984-85 that the City initiate a program of pre- employment physicals to include spinal x-rays. Such a program clearly is advantageous since the costs (medical, compensation and settlement) i of one total and permanent disability injury screened out per year will pay for the program. Worker's Compensation costs and projections of future costs generally are negatively affected during each session of the Texas Legislature. Most Worker's Compensation legislation passed in recent sessions by the Legislature has had the effect of removing employer protections and increasing costs. Staff will continue to analyze each proposed piece of Worker's Compensation legislation and reccfcmend appropriate Council action. In order to contain future Worker's Compensation costs and minimize future deficits, the Risk Management Division of the Personnel Depart- ment reccumends the following: 1) Continue to emphasize safety awareness among employees through the activities of the City Safety Program and the City Safety Board. 2) Establishment of an Industrial Clinic during Fiscal Year 1984-85 which would: A. Conduct pre-employment physicals for new hires with back x-rays for particular positions; ISSUED BY THE CITY MANAGER — FORT WORTH, TEXAS e INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 6938 - Page 4 P T,N,Grew" To the Mayor and Members of the City Council May 29, 1984 Subject: PROJECTED WORKERS COMPENSATION FUND DEFICIT '07 FOR THE CURRENT FISCAL YEAR B. Provide treatment for less serious occupational injuries; C. Conduct health screening programs to identify health pro- blems before they become Worker's Compensation or Group Health costs; D. Develop health education and wellness programs to achieve a healthier, more productive work force. 3) Review proposed Worker's Compensation funding during the late stages of budget deliberations each year. 4) Consider establishment of Worker's Compensation reserves to cover incurred losses and future costs of injuries sustained during prior years. 5) Continue analysis of proposed Worker's Compensation legislation and take appropriate action to support or oppose. Should the Council desire additional information on this issue, it will be provided upon request. /) �A C Robert L. Herchert City Manager RLH:jc Attachment ISSUED BY THE CITY MANAGER --- FORT WORTH, TEXAS