Thursday, August 16, 2018

The Funding of Florida Workers' Compensation

There are a variety of methodologies for financing government operations. Taxes can be collected, fees can be charged specifically to those who consume services, or certain market segments can be assessed. I am persistently surprised by how many people do not know that in many states no taxes are used to support the regulation, education, prevention, and adjudication functions of workers' compensation. Florida is an example of this.

The option of taxpayer support is easy enough to understand. State government is replete with agencies that are apportioned some part of the state's "general revenue" from taxes or fees. Those various agencies' share is decided annually by the legislature in a difficult assessment of need and apportionment.

In Admission is Free but You Pay to Leave (January 2014), this blog described one "fee for service" method of funding. In South Carolina, lawyers wishing to withdraw from a case pay a $25.00 fee. The general structure of funding for Florida's court system is built around charging "filing fees" when cases are first brought. Those fees then serve as the revenue for related expenses like record keeping (clerks), adjudicating, and more. Such a "filing fee" system could be employed similarly in workers' compensation. Recently in An All To Common Problem (July 2018) Iowa's plan of collecting penalties or fines is discussed, another methodology for deriving revenue based on specific cases. 

In 2017, in Financing Work Comp Regulation (October 2017) this blog overviewed the "trust fund" method. This is the third alternative mentioned above, and the one employed by Florida. The Division of Workers' Compensation is responsible for administering, maintaining, and monitoring two important trust funds: The Workers' Compensation Administrative Trust Fund (WCATF) and the Special Disability Trust Fund (SDTF). The latter is focused on state liability for certain reimbursements to employers and carriers in specific injury cases. Though it has been "sunsetted," there remain cases subject to reimbursement and the  SDTF is for that purpose. 

The former, the WCATF, is responsible for funding the various operational elements of Florida workers' compensation. The Division describes the fund on its website, and provides a visual graphic from 2016-17 to explain where that money goes each year:


Roughly a quarter of the expenditure is used by the Division for its regulation and monitoring of the workers' compensation system; the Division is also engaged in issues of medicine, education, re-employment, and assisting injured workers with issues/questions, among other things. Estimating values from this chart, it appears perhaps another 16% is utilized to pay permanent total disability supplemental payments (in some cases, based on older accident dates, those benefits are paid by the state rather than the employer), and another 8% is transferred to the state's "general revenue." It appears approximately 25% is required to fund the Office of Judges of Compensation Claims and Florida First District Court

As an aside, the Florida First DCA funding comes as a surprise to some. Florida's courts are funded primarily through user (filing) fees, described in a recent report, and mentioned above. Therefore, many are unaware that the WCATF provides financial support to the appellate court on the logic that this court is statutorily responsible for reviewing workers' compensation determinations. In that regard, the First DCA and WCATF relationship seems at least somewhat unique. Does any other state funding mechanism provide direct financial support to a specific court in this fashion?

The 2015-16 Division of Workers' Compensation Results and Accomplishments report provides more detail. Similarly, the 2016-17 Results and Accomplishments (page 24) breaks down both the income and expenses of the WCATF, but does not provide the figures related to the overview chart shown above:


Thus, in 2016-17, the WCATF was financially solvent with a surplus of about $24M. And, none of this money comes from the Florida taxpayers. The income to the WCATF comes from assessments levied on the workers' compensation community: employers and companies that provide workers' compensation insurance. It is a self-supporting cycle in which the community that is served provides the funding necessary for the regulation, administration, and adjudication of disputes.


Assessment rates are determined periodically. The WCATF rate is currently less than 1%, but has been as high as 1.75% in the last decade. The Division publishes all of the historical rate data. The WCATF traditionally maintains a surplus. In a January 2016 legislative analysis, the prediction was that the "WCATF will maintain a positive surplus cash balance of $161.1 million in FY 2016-17, $162.4 million in FY 2017-18, and $163.7 million in FY 2018-19." An email from the Department of Financial Services on August 16, 2018, informed the current surplus is $173,799,898. Thus, despite moderate assessment rates, the financial health of the trust fund process appears strong. 

Noted in the 2017 Office of the Judges of Compensation Claims Annual Report (page 2) the total OJCC budget was $17,430,852. Though the budget has fluctuated, it has been overall reasonably consistent in recent years. The report provides an overview of where those budget dollars are expended (page 7), and it illustrates that $13,317,923 (76%) is payroll and benefits. Thus, the majority of the OJCC budget is expended in the seventeen communities around Florida in which OJCC District offices are located. The same is true for the 16% of the OJCC budget expended on real estate premises and security services for those locations. 


These are three points worthy of note. The Florida workers' compensation system is self-supporting, not reliant upon the Florida taxpayer. Furthermore, that self-support is not through filing fees or other burdens on the injured worker. Finally, the expenditure of those resources is throughout Florida, in the very communities in which accidents and injuries occur, and in which adjudication and mediation services are needed.