AUGUSTA, Maine — The Maine Bureau of Insurance on Monday approved a 3.9 percent rate increase for workers’ compensation insurance, the largest rate increase the bureau has approved in at least six years.
The factor driving this increase, scheduled to take effect on April 1, is health care costs, according to Paul Sighinolfi, executive director of the Maine Workers’ Compensation Board.
In 2000, workers’ compensation payments were split 50-50 between the indemnity payments to the injured employee and payments to the health care providers. Today, health care costs represent 58 percent of all workers’ comp payments, Sighinolfi said.
The rate increase will mean Maine businesses and municipalities will need to shell out more money to buy workers’ comp insurance on the commercial market, according to Michael Bourque, senior vice president of external affairs at the Maine Employers’ Mutual Insurance Co., commonly referred to as MEMIC, which controls about 60 percent of the commercial market in Maine.
Insurance carriers that offer workers’ comp coverage aren’t obligated to adopt rate changes, whether up or down, Bourque said. Most do, however, because the rate change requests are backed by actuaries, he said. MEMIC’s senior management will meet Thursday afternoon to decide whether to adopt the full 3.9 percent rate increase.
Bourque estimates that the cumulative increase in premiums paid by Maine businesses and municipalities could be as much as $10 million. Businesses that employ people in occupations with more risk, such as in the construction industry, will be hit harder than others, Bourque said.
“It’s a time when the economy is difficult, so it’s not anything that people will be happy about,” Bourque said Tuesday afternoon “We even understand that. The timing is a bit difficult for folks, as well. It’s not something that anyone is looking at and saying, ‘This is good news.’”
This approved 3.9 percent rate increase comes on the heels of a rate decrease of 1.8 percent, which the Maine Bureau of Insurance approved in November and which went into effect Jan. 1. That decrease was expected to result in approximately $3.5 million in savings to businesses, according to Doug Dunbar, a spokesman for the insurance bureau.
The reason behind the disparity between the two rate changes is that the workers’ comp board, which is not part of the insurance bureau, in December updated its medical fee schedule, which determines how much health care providers receive for their services, after the bureau already had approved the 1.8 percent rate decrease, Sighinolfi said.
The workers’ comp board has only compiled a fee schedule since 2011, but is obligated now to do so annually, he said.
While the rate decrease that went into effect Jan. 1 reflected a reduction in the number of workers’ comp claims in Maine and the severity of claims, the newly approved increase reflects the higher health care costs reflected in the updated fee schedule, Sighinolfi said.
Peter Gore, vice president of government relations for the Maine State Chamber of Commerce, wasn’t surprised by the rate increase, as he knew about the new fee schedule. He likes to think of the two rate changes as one, for a net rate increase of 2.1 percent.
“Is it a big increase? No. Will it impact [Maine’s businesses]? Probably some more than others,” Gore said Tuesday afternoon. “Small businesses are already struggling with other costs: health care, wage and hour issues, the whole nine yards. So some small businesses are going to feel the pinch on this.”
A 3.9 percent increase is the largest increase in at least six years, according to Bourque. There was a slight — 0.4 percent — increase in 2011, but cumulatively rates have dropped 22.9 percent since 2008, Bourque said.
Overall, rates have experienced a cumulative decrease of 51 percent since the 1992 workers’ compensation reform, according to the insurance bureau’s Dunbar.