2005 Legislative Update

The following is a summary of the 2005 workers' compensation omnibus bill with an explanation and a procedural history of how the bill was designed and the reasons why.

1. Amend the LLC and LLP provisions of 2004.

In 2004, the General Assembly for the first time considered limited liability entities as it relates to workers' compensation and amended the Act accordingly. Unfortunately, unintended consequences of those changes included exposure and exclusions to both employers and employees. The definition of "employee" in RIGL 28-29-2 was amended again this year to address these exposures and exclusions to include shareholders and members who are also employees as "employees" for purposes of the Act. Members and managing members now have the opportunity, like all employees, to opt into or out of the Act. In addition, the fraud provisions were amended to memorialize the responsibility of these entities to secure workers' compensation insurance and the penalties, both criminal and civil, for a failure to do so. RIGL 28-29-2, 28-29-27, 28-27-29, 28-33-17.3, 28-36-15. This portion of the bill will be effective upon passage.

2. Eliminate filing of annual report by Fraud Unit.

The Fraud Unit is a division of the Department of Labor and Training. The Unit was charged with filing an annual report with the General Assembly. The information contained in the Fraud Unit Report is contained in the report of the Department of Labor and Training. This change eliminates this redundancy and the obligation of the Fraud Unit to file an independent annual report. RIGL 42-16.1-12. This will apply to next years report.

3. Refine "general and special employer" provisions as it relates to temporary and leased employees.

Rhode Island is like most other states in that the Rhode Island Workers' Compensation Act has a provision addressing the circumstance where an employee is employed by a leasing or temporary employment agency. The Act provides that in almost all circumstances, the temporary agency or the leasing employer is considered the employer for workers' compensation purposes. One exception is where the leasing company or the temporary agency does not have workers' compensation insurance. In that case, the company using the leased or temporary employee is deemed the "employer". What the change in the law does is tighten the accountability of the company that is using the temporary or leased employee.

In the past, if the "client company" asked for and received a certificate of insurance from the temporary agency, whether valid or invalid, the client company could never be deemed the "employer". This led to circumstances where the employee-leasing agency may not have insurance, a worker is injured and the client company off the hook. As of January 1, 2006, if a company is using leased or temporary employees, the company must obtain an insurer generated insurance coverage certification from the temporary agency or leasing company. The failure to do so results in the client company being deemed the employer for all purposes of workers' compensation. No more exceptions. It also provides that insurance carriers will send statutory notice of insurance cancellations to both the Department of Labor and Training and the client companies. The Department of Labor and Training will shortly begin designing this form. The effective date for implementation of this legislation is January 1, 2006. The goal is to eliminate the opportunity for fraud and abuse of workers, insurance carriers, employers and the workers' compensation system as a whole. RIGL 28-29-2.

4. Extend "Gate Provisions" of 1990 for another two years.

The reforms of 1990 defined the manner in which a partially incapacitated employee could receive more than 312 weeks of partial incapacity benefits. This is referred to as the "Gate". In 1992, the General Assembly amended this provision. This 1992 amendment has yet to be implemented as the 1990 definition has been effectively used since that time. This change simply delays the implementation of the 1992 definition for an additional two more years. RIGL 28-33-18.3.

5. Assessment language.

RIGL 28-37-13 outlines the method by which the workers' compensation system in Rhode Island is funded. It is not from tax revenue. It is from an assessment on all self-insured employers and insurance companies that write workers' compensation insurance. Presently that assessment is 6% of the gross premium charged or in the case of a self- insured employer, 6% of what would otherwise be charged if the entity were insured. The statute has provisions that consider the circumstance of either an increase or decrease in the assessment. The statute was first enacted over fifty years ago. The Governor's budget this year considers the present market realities of audits, installments, mid-term cancellations and renewals and changes the way in which an insurance company would account for either an increase or decrease in the assessment.

6. Continuation of Health Insurance Benefits

The Workers' Compensation Act has a provision that statutorily mandates, under some circumstances, the continuation of health care benefits to incapacitated injured workers. (RIGL 28-33-44). A floor amendment to RIGL 28-33-17 in S 699 was as follows:

"Notwithstanding any other provision of the general law or public laws to the contrary, any employee of the state of Rhode Island who is receiving workers' compensation benefits for total incapacity as a result of a brain injury due to a violent assault shall be entitled to receive the health insurance benefit he or she was entitled to at the time of the injury for the duration of the total incapacity or until said employee and his or her spouse are both eligible for Medicare."

This bill became law without the Governor's signature.

H 5858 also was amended on the floor. The language here was somewhat similar, but much broader, as follows:

Notwithstanding any other provision of the general law or public laws to the contrary, any employee of the state of Rhode Island who is receiving workers' compensation benefits for total incapacity shall be entitled to receive the health insurance benefit he or she was entitled to at the time of the injury for the duration of the total incapacity.

This bill became law too without the Governor's signature. It does not bode well for the state employee's workers' compensation system. It does not apply to any other employees. Diligence is required on any potential future changes.

Non-Omnibus Workers' Compensation Legislation

The Governor's Budget

Indirect cost recovery.

In 1993, the Rhode Island economy was in shambles.  Governor Sundlun then proposed, and the General Assembly accepted, a short- term solution to the state budget difficulties by creating an "indirect cost recovery" or 7% assessment on all restricted receipt state accounts. (RIGL 35-4-27). One of these accounts was and remains the Administrative Fund that funds the operation of the Rhode Island workers' compensation system. This year's budget increases this "indirect cost recovery" from 7% to 10%. Thus, for every insurance premium dollar paid by the employers of Rhode Island, presently 6 cents goes into the Administrative Fund to support the system. Of those 6 cents, now 10% of that or .06 percent of every premium dollar paid for workers compensation will go into the State General Fund and not to the benefit of the workers' compensation system.

Summary

All of the above provisions will be effective on July 19, 2005 except those changes impacting the general/special employer provisions.