HELENA — While the Legislature passed landmark workers’ compensation reform designed to save Montana businesses millions of dollars, it also stuffed into a last-minute bill a new premium tax for workers’ comp insurance sold by the Montana State Fund.
The tax — dubbed an “assessment” by Republican leaders — will be 2.75 percent on all workers’ comp premiums written by the State Fund, starting July 1.
Money from the tax will go toward paying down costs of the state’s workers’ comp “Old Fund,” which covers costs from State Fund injured-worker claims that began before July 1990.
“This approach takes on a longer view ... and places more responsibility on the board (of the State Fund) and the fund to address the Old Fund on a long-term basis,” Senate President Jim Peterson, R-Buffalo, said Friday.
“It was kind of a compromise.”
Peterson said that even with the premium assessment, customers of the State Fund should still expect a substantial reduction in workers’ comp insurance rates on July 1, because of the reforms passed earlier.
Peterson said those reductions should be about 22 percent.
However, State Fund President Laurence Hubbard said Friday that the actual reduction for State Fund customers remains to be determined. The State Fund board meets May 20, when it will set insurance rates for the fund’s 23,000 business customers, based on its actuary’s recommendation.
Hubbard said he expects rate reductions to be more in the 15 percent to 20 percent range.
The State Fund, a quasi-state agency, covers about 60 percent of the workers’ comp market in Montana. Self-insured employers and private insurance make up the rest.
Workers’ comp insurance, which is required by law, covers businesses for the cost of on-the-job injuries.
Montana has had among the highest workers’ comp rates in the nation, and a reform package passed by the Legislature last month is projected to cut rates by as much as 25 percent starting July 1.
Yet lawmakers also had to deal with covering costs of the Old Fund, which was created 20 years ago in another major reform effort.
The Legislature borrowed money from the Old Fund eight years ago to balance the state budget and had not paid it back, and the Old Fund is slated to run out of money this spring. It still has an estimated liability of more than $50 million.
House Bill 604, which contains the new premium tax, initially covered that $50 million liability with a straight transfer from the state treasury.
Yet changes made to HB604 on Thursday, the last day of the session, enact a different solution.
The state will transfer up to $13 million over the next 14 months to cover Old Fund costs, and the rest will be covered with income from the 2.75 percent premium tax on State Fund customers.
“This is an added expense that we’ll have to absorb,” Hubbard said. “We’ll have to look at it, within our estimated annual costs, and our board will have to make appropriate decisions on how to manage it. We get our costs paid only by the premiums we charge our customers.”
HB604 was one of the last bills approved by the 2011 Legislature on Thursday.
Rep. Chuck Hunter, D-Helena, who voted against HB604 and worked on workers’ comp issues during the session, said Friday that the 2.75 percent “assessment” is certainly a tax — “and will be seen as a tax by every businesses that has to pay it.”